1. Whether the assessee-firm is entitled to deduction of Rs. 2,01,000 or Rs. 36,61,625 as the cost of the land on which the multi-storeyed building was constructed on the following grounds: b. The land having been brought in by Shri H.R. Vadhera as stock-in-trade or capital asset c. If brought in as a capital asset, then on its being converted into stock-in-trade 2. Whether there is any evidence of on-money being charged and if so, whether addition sustained by Judicial Member is justified Between the learned Members who heard the appeals originally, the points of difference were initially referred by the President to himself under Section 255(4) of the Income-tax Act, 1961 ('the Act'), for hearing on the aforesaid points.
2. At the time of hearing, however, the assessee's counsel as well as the senior departmental representative raised preliminary objections as to the formulation of the points of difference. The assessee's counsel also contended that the order of the learned Judicial Member, if given effect to would result in enhancement of income in respect of certain grounds, particularly as regards the second point of difference and that the Tribunal being not empowered to do so under Section 254(1) of the Act, the order of the learned Judicial Member in that regard requires to be ignored.
Being of the view that the issues raised are important and are likely to have far reaching effect, the President considered it desirable to assign the case to three members for disposal within the meaning of Section 255(4), This was done and that is how the matter has eventually come up before us.
3. According to Shri Sharma, the assessee's learned counsel, the points of difference should be formulated in such a manner as to bring out the material controversy, such as, whether a particular addition or disallowance is justified so that all possible aspects touching the ground can be considered by the Third Member(s). It is stated that the points of difference in this case have been formulated in a manner which restricts the controversy to some of the reasons given by them for their conclusions which is not desirable. The case of the senior departmental representative, on the other hand, is that the points of difference should be formulated to bring out the real controversy reason-wise and not ground-wise. In other words, the submission of the senior departmental representative is that if, say, there are ten reasons given by the learned Judicial Member for deciding a ground against the department and if the learned Accountant Member has agreed with him on seven reasons, the point of difference should be formulated to restrict the controversy to the remaining three reasons only.
4. On hearing the parties and after going through the provisions of Section 255(4) carefully, we are of the view that if there is a difference of opinion between the Members who originally heard the appeals and the Members are equally divided, it is the duty, rather the prerogative, of the differing Members to state the point or points on which they differ. Under this sub-section, the President has to refer the case to the Third Member(s) on such point or points. The Third Member is competent to decide only the particular points referred to him and he cannot formulate a new point and decide it. In our this view, we are supported by the decision of the Allahabad High Court in the case of Jan Mohammed v. CIT  23 ITR 15 and the decision of the Patna High Court in the case of Hanutram Chandanmul v. CIT  23 ITR 505. The only exception we can think of will, perhaps, be when the differing Members apart from differing in opinion on a point or points also differ as to the formulation of the point or points of difference and state the question of formulation of the point or points of difference as well to the President for reference to the Third Member. There being no difference between the learned Members who heard the appeals originally regarding the formulation of the point or points of difference, assuming that we were persuaded to agree with the parties that the points of difference had not been properly formulated, we would have found it difficult to accept the suggestion to formulate the points of difference in our own way for decision.
Moreover, on going through the points of difference, as stated by the learned Members and referred to in paragraph 1 hereinabove, we are not able to appreciate the grievance against the points of difference formulated by the differing Members. The points of difference, in our opinion, bring out the controversy between the Members substantially.
This is quite apart from the fact that having regard to the decision of the Madras High Court in the case of CIT v. Sundaram & Co. (P.) Ltd.  52 ITR 763 and the decision of the Supreme Court in the case of Ram Kumar Agarwalla & Bros. v. CIT  63 ITR 622, we are inclined to hold that the point(s) of difference should be stated by the differing Members and/or understood in a manner that gives scope to both the parties to urge their viewpoints on all possible aspects on the point(s) of difference so that the Third Member's opinion thereon results in a majority view necessary for disposal of the appeal under Section 255(4).
5. As regards Shri Sharma's further contention that the learned Judicial Member exceeded his jurisdiction and, therefore, his order regarding the second point of difference should be ignored, we find that Section 254(1) places on the Tribunal powers of widest amplitude in dealing with the appeals before it. It grants by implication the power of doing all such nets or employing such means as are necessary to its execution. The distinction between the powers of the Tribunal and those of the AAC/Com-missioner (Appeals) is whereas the powers of the AAC/Commissioner (Appeals) extend to the entire assessment including the power of enhancing the assessment, the only limitation being that the AAC/Commissioner (Appeals) cannot travel beyond what the ITO considered and processed in his assessment order, the Tribunal has no such power.
6. The expression 'power to enhance the assessment' has been uniformly held to mean enhancement of the income or the reduction of the loss as computed by the ITO. in the present case, it would be enhancement of the income or reduction of the loss as per the order of the Commissioner (Appeals). This is certainly not the effect of the learned Judicial Member's order as is evident from the figures worked out by the assessee itself.
At the same time, it may be desirable to read in Section 254(1) an in-built limitation on the powers of the Tribunal. The expression 'thereon' used in the sub-section means and can only mean on the ground(s) raised by the appellant. In other words, the Tribunal cannot, perhaps, travel beyond the grounds of appeal to decide an issue against the appellant which is altogether different and unconnected with the grounds of appeal raised even though the net result of the Tribunal's order is not the enhancement of income or reduction of loss.
There is another factor in view of the judicial pronouncements which has a bearing on the powers of the Tribunal, namely, that the Tribunal cannot place the appellant in a position worse than what he would have been had he not corns up in appeal. Here again, it is not even suggested by Shri Sharma, the !earned counsel for the assessee, that assuming the order of the learned Judicial Member is to be given effect to, the resultant income will be more than what it is as a result of the order of the Commissioner (Appeals).
However, the learned counsel for the assessee submitted that for the purpose of considering the latter aspect, it is not the total income or the loss as a result of the order of the Commissioner (Appeals) which is relevant. According to him, the Tribunal cannot even enhance the income under different heads, sub-heads or even in respect of the different items under the same sub-heads or heads. In other words, the submission is that if an assessee has taken ten grounds of appeal, and the Tribunal has granted substantial relief on five grounds but has enhanced the addition or disallowance on the remaining five grounds, even if the net result is substantial relief, it would be a case of an order placing the appellant in a position worse than what he would have been had he not come up in appeal. According to Shri Sharma, this would be applicable even in a case where the grounds of appeal have different parts and the additions or disallowances are enhanced in respect of one part and substantially reduced in respect of the other part.
What has happened in this case is that the assessee-firm started its business of constructing a multi-storeyed building in the year 1970.
The construction was completed in the year 1977. Sales of the flats have been made during all these years. However, for all these years, the assessee has been showing its income on the basis of sale price of flats by adopting a certain gross profit rate. In fact, the assessments were completed originally on that basis for the assessment years 1972-73 to 1974-75. Assessments for the subsequent assessment years were pending and, in the meantime, the assessments for the assessment years 1972-73 to 1974-75 were reopened under Section 147(a) of the Act.
When all these assessments were taken up eventually, it was common ground that the multi-storeyed building and the sale of the flats should be taken as one venture and that the profits or losses so computed for the venture should be allocated in the various years for tax purposes on some reasonable basis. It may not be out of place to mention here that, in the meantime, orders of assessment for the assessment years 1972-73 to 1974-75 had also been set aside by the Tribunal so much so that this common approach was and has been legally possible with regard to the pending assessments including the assessments originally completed.
For the purpose of computing the profits of the venture the departmental authorities have made additions by estimating the 'on-money' received by the assessee on sale of flats on a particular basis. The learned Judicial Member, assuming he is right, has proceeded on actual basis in the case of some sales as he felt that there was material on record for coming to such a conclusion. As regards the sale of other flats, he has estimated the 'on-money' on some other basis.
This has resulted in the increase of the addition in the case of sale of some flats and substantial reduction of the addition in the case of sale of other flats. The net result is substantial reduction of the addition on account of 'on-money' received on the sale of the flats; The whole thing is so inter-connected that it is difficult to accept that the Tribunal, in this case the learned Judicial Member, exceeded the jurisdiction! in considering the ground regarding the addition on account of 'on-money' in his own way.
In this context it has to be borne in mind that there was an agreement between the assessee and the department that the profits of the entire project for all the years, be first computed on some reasonable basis and that the net profits so computed be distributed amongst the different years covered by the project. Therefore, in a case like the one before us what is really important is not the computation of profits year-wise but the profits of the project as a whole. There is, then, no dispute that even if effect is given to the learned Judicial Member's order, the overall income for the project has been taken by him at a figure less than what was taken by the Commissioner (Appeals).
7. No doubt, the Bombay High Court has, in the case of Pokhraj Hirachand v. CIT  49 ITR 293, held that though the powers of the Tribunal in dealing with an appeal under Section 33 of the 1922 Act, corresponding to Section 254 of the 1961 Act, are very wide, they are not absolute and have further held in that case that the Tribunal was in error in dealing with the further question as to the quantum of expenditure allowable. On a careful examination, however, it appears to us that the decision does not support the assessee's proposition. It is pertinent to mention that the AAC in that case, found that the assessee had paid the entire amount of Rs. 3,00,000 to Milkhiram R. Goyal and had confirmed the disallowance only on the ground that the payment was capital in nature. In appeal, at the instance of the assessee, the Tribunal accepted the assessee's submission that the expenditure was not capital in nature. However, without the department challenging the finding of the AAC that the assessee had paid the entire amount of Rs. 3,00,000 to Milkhiram R. Goyal, the Tribunal proceeded to consider the further question as to the quantum of expenditure allowable. It was on those facts that the Hon'ble High Court considered the Tribunal to be in error in dealing with the question as to the quantum of payments made by the assessee to Milkhiram R. Goyal.ITO v. R.L. Rajghoria  119 ITR 872 were that the assessee had shown loss of Rs, 23,000 in share transactions. The loss was treated to be of speculative nature by the ITO. The order was confirmed by the AAC. On further appeal, the Tribunal accepted the assessee's submission that the transaction was not speculative in nature. However, it remanded the matter to the AAC for decision whether the loss was capital loss or a trade loss in the hands of the assessee. The High Court allowed the writ petition filed by the assessee observing that the word 'thereon' in Section 33(4) of the Act restricted the Tribunal's jurisdiction to the subject-matter of appeal before the Tribunal and the subject-matter of appeal consists of memorandum or grounds of appeal, additional grounds, if any, urged before the Tribunal and the grounds, if any, urged by or on behalf of the respondent to support the order under appeal. Finding that the question whether the loss was capital loss was neither included in the grounds taken originally or subsequently nor was it urged by the respondent in support of the order of the AAC, the High Court held that in deciding the cases in that manner, the Tribunal went out of its way and though the question was not within the scope of its authority. . .. Here again, it is evident that the decision rested on the fact that that aspect of the matter was not urged before the Tribunal in any of the methods permissible under the law.
The facts in the case of V.P. Samtani v. CIT  135 ITR 313 (Cal.) the also are materially different. There, the question was whether the Tribunal can uphold imposition of penalty on an item of addition different from the items of income for which the IAC had imposed the penalty. We wonder whether this decision has any bearing on the facts of the case.
The Delhi High Court had quite recently an occasion to consider the meaning and scope of the expression 'subject-matter of appeal' in the case of CIT v. Edward Keventer (Successors) (P.) Ltd.  123 ITR The subject-matter of an appeal should be understood not in a narrow and unrealistic manner but should be comprehended as to encompass the entire controversy between the parties which is sought to be got adjudicated upon by the Tribunal.
In a case where there are inter-connected grounds of appeal and they have impact on the same subject-matter, the scope of the appeal should be broadly considered in the correct perspective. While the appellant should not be made to suffer and be deprived of the benefit given to him by the lower authority where the other side has not appealed, equally and procedural rules should not be interpreted or applied so as to confer on an appellant a relief to which he cannot be entitled if the points decided in his favour on the same matter by the lower court are also considered as requested by the respondent.
Emphasis, it may be stated, has been laid down on the fact that if a ground on which relief is sought by the respondent is so much inter-connected with the grounds of appeal by the assessee, the said ground should be considered forming a part of the subject-matter of appeal. Respectfully following the decision of the Delhi High Court, we hold that the manner in which the learned Judicial Member approached the question of additions on account of understatement of sales could not be held to exceed jurisdiction under Section 254(1).
8. Moreover, the Third Member is not an appellate authority. His opinion on the point or points of difference is relevant as such point or points will be decided according to the opinion of the majority of the Members of the Tribunal who have heard the case including those who first heard it. Therefore, even if it is assumed that the learned Judicial Member exceeded his jurisdiction, the proper course for the assessee, perhaps, would be to take up that issue in reference after the disposal of the appeal by the Bench in case the majority view goes against the assessee on merits. Moreover, we have agreed with the learned Accountant Member on the second point of difference. There will, thus, be no addition on account of understatement on the sale of flats.
In the circumstances, looking at it from any point of view, we find no merit in the preliminary objections raised by the parties and, therefore, reject them.
9. Before dealing with the points of difference, it is necessary to mention those facts briefly (we refrain from giving the facts in detail as both the learned Members have narrated the facts elaborately). This is one of the earliest multi-storeyed buildings that came up in Delhi.
The flats were offered for sale by the assessee. There was no advertisement as such for the sale of the flats. It also transpired that the assessee had not appointed brokers. So far as the land was concerned, it was a leasehold land from the Government of India and the President of the Indian Republic terminated the lease. A writ petition was filed by Shri Vadhera and it appears that it is pending. Houses of the partners of the assessee-firm were searched. Nothing seriously incriminating material has been found. No unaccounted cash has also been found. But certain documents relating to the sale of the plots by the assessee-firm were found, for instance some blank forms of assignment signed by the allottees and copies of agreements and receipts have been found. When the question of an assessment of the assessee in respect of income arising opt of the sale pf the flats came up for consideration, the ITO was in possession of an unsigned pamphlet giving schedule of rates of different flats in the assessee's building.
The ITO further noticed the rates at which the assessee sold the flats as per the entries in the books of account. The ITO further obtained letters from some original allottees as well as subsequent allottees regarding the rates at which they paid for the flats. He found that there is material difference in the rates recorded by the assessee in its books of account and the rates mentioned in the pamphlet as also in the earlier statements of some of the allottees. It may be mentioned here that there were altogether 64 flats. Out of 24 original allottees, 12 have surrendered and the flats were re-transferred. There are thus two categories: one of original allottees and the other of subsequent allottees on re-transfers. The ITO having considered the evidence as mentioned above, came to the conclusion that the assessee received on-money, i.e., over and above the recorded sale price. He estimated such extra money and added the same in the hands of the assessee as income from undisclosed sources. The Commissioner (Appeals) agreed with the assessee. When the matter came up before the Tribunal, there arose a difference of opinion between the learned Judicial Member and the learned Accountant Member, who constituted the Bench. The learned Judicial Member was of the opinion that there is evidence, direct and circumstantial, for coming to the conclusion that the assessee received on-money. In recording a finding of that nature, the learned Judicial Member also took into account, the notorious fact of black money passing in transactions relating to immovable properties in the country. The learned Judicial Member analysed the evidence with reference to each of the flats which according to him were actually booked at a higher rate than what was recorded in the books of account.
The entire aspect has been dealt with by him in paragraphs 74 to 103 of the order. The learned Accountant Member, on the other hand, held that there is no evidence of any on-money and the matter was decided by the revenue authorities on mere surmises. He has recorded his findings in paragraphs 13 to 19 of his order.
10. The learned departmental representative wholly relied on the reasoning of the learned Judicial Member. He has summarised the evidence in a short note containing four pages. In addition, it was his argument that when a building was completed, the sale price would be definitely more ; that prices of real estate were on increase after Bangladesh War, i.e., 1971. Particular reference is made to Clause 4 of the agreement for transfer of the flats which stipulates that the time is the essence of the contract and the advance money would be forfeited as liquid damages in case there is a default committed by the buyer.
According to the learned departmental representative, this would show that the assessee would not have parted with the flats at the same rates at which they have been surrendered in its favour by the original allottees. The order of assessment as well as the order of the Commissioner (Appeals) in support of the revenue have been placed before us.
c. there is no evidence by the income-tax authorities to prove the market rate of similar flats ; d. pamphlet relied on by them has not been proved to have emanated from the assessee ; e. even otherwise the pamphlet is totally incorrect both in regard to the flat to be sold and the rates at which they were supposed to be sold, and lastly f. that absence of any incriminating evidence in the search, termination of lease by the President of India and the pendency of the writ petition, the fact that this is the earliest multi-storeyed building coming up in the capital and the people are not enthusiastic at the time and the further fact that the assessee had no brokers nor there was any advertisement should be taken into account in deciding a matter of this nature.
12. Having considered the matter fully and having gone through the evidence, which is placed before us, coupled with the submissions of both the parties, we are unable to subscribe to the view expressed by the learned Judicial Member.
Essentially the question whether the assessee received on-money is a question of fact to be decided on the evidence on record. The evidence may be direct or indirect or circumstantial. It is not necessary in every case to record a finding only on direct evidence. It is enough if there is indirect or circumstantial evidence for supporting a finding of fact. But in relying on such evidence one must be very careful so that one may not tread the path of conjectures, suspicion and surmises.
When we are dealing with the case of a person (sic) whether he received on-money or not, the finding would naturally result in additions by way of income and the assessee would be also exposing himself to penal consequences.
13. It is admitted that out of 24 flats, 12 flat owners surrendered and there were re-bookings. According to the assessee they were all done at the instance of the original allottees but the revenue's case is that they were done by the assessee. These 12 persons were all examined. It is the case of the revenue that the assessee charged more than what was recorded in its books of account. The main piece of evidence is the pamphlet, which is brought on record. This pamphlet gives schedule of rates for all the flats in different floors. This pamphlet is in paper book No. 2 at page 1015. The contents of the pamphlet may be reproduced since this is one of the vital pieces of evidence which the revenue relies: (Proposed Multi-storeyed office Flats on Ownership basis at Barakhamba Road) 3rd Floor Offices 150.00 4th Floor Offices 147.50 5th Floor Offices 145.00 6th Floor Offices 142.50 7th Floor Offices 140.00 8th Floor Offices 137.50 9th Floor Offices 135.0010th Floor Offices 132.501lth Floor Offices 130.0012th Floor Offices 127.5013th Floor Offices 125.0014th Floor Offices 122.5015th Floor Offices 120.0016th Floor Offices 117.5017th Floor Offices 115.0018th Floor Offices 112.50 The assessee completely denied the authorship of this pamphlet.
According to him it did not know how the pamphlet came and who got it printed. The explanation of the assessee was that some broker on his own might have got it printed for sale of the flats but the assessee had nothing to do with it. Initially, therefore, we have to find out whether this pamphlet was really got up by the assessee and that the assessee offered the flats at the particular rates mentioned therein.
There is no evidence brought on record that the pamphlet was got up by the assessee. How the pamphlet has come into the record is also not very clear. Admittedly, it has not been found during the search of the assessee's premises nor was it found in any of the residences of the partners of the assessee-firm. Secondly, this pamphlet itself does not give the correct information. 3rd floor, and 15th to 18th floors were not meant for sale and it appears that they were never offered for sale. Therefore, it is difficult to place so much reliance on the pamphlet as has been done by the revenue authorities as also the learned Judicial Member. We will also presently show that the schedule of rates given in the pamphlet may not represent the actual sale price for more than one reason.
14. If we take the pamphlet as such and assume that it has emanated from the assessee, it only shows that these flats were offered at the particular rates. They may not represent the actual sale price which ultimately the assessee was able to obtain. It is also worthwhile noticing that some of the calculations given by the revenue to prove its point that the amounts paid by some of the flat owners tallies with the schedule of rates in the pamphlet is not entirely correct. We will show this aspect a little later. It is also worth noticing that the persons, who have been examined and on whose evidence the revenue relies, have not at all testified to the rates mentioned in the schedule. More important fact to be noticed in this connection is that they have admitted to have received whatever they have paid. If that is so, where is the question of anything as on-money received and retained by the assessee This leads us to the consideration of the evidence of the several persons, who have been examined.
15. The first witness is Shri Jitendra Nath. His evidence is at page 1009 of the paper book No. 2. To the question as to at what rate he booked the flat No. 4G, he replied that according to the schedule found in their file, it was Rs. 147.50 per sq. ft. There is no other record in his file to substantiate the rate at which he paid for the flat. He, however, categorically admitted that he made a payment of Rs. 48,077 in three instalments and that he received back the same amount at the time of surrender of the flat. There was also a question by the assessee to him as to whether he had made any cash payment over and above than what was paid by way of cheques. He denied to have paid any amount. There was specific question as to the rate at which the instalments were paid. He answered that he never calculated and paid what he was asked to pay.
It is clear from the statement of Shri Jitendra Nath that he mentioned the rate only from the schedule of rate with him. He has no other document in his possession to prove the rate at which he paid. Even the instalments do not tally with the schedule of payments to be made according to the pamphlet. In fact he has stated that whatever would be the balance to be paid, it was to be adjusted in the last instalment.
It is also worth noticing that the receipts issued do not show the rates nor the percentage at which the instalment was paid. This has been mentioned in question No. 5 put by the ITO (page No. 1012 of paper book No. 2). The ITO no doubt asked about the schedule of rates which was with Jitendra Nath. He stated in response to summons under Section 131 of the Act that it was given by the assessee. His reply was: 'When you asked me who that means the person and I do not remember who exactly gave the schedule to us. It was evidently somebody from Hansalaya Properties.' This part of the statement is only relevant for the purpose of proving the authenticity of the pamphlet especially with reference to its connection with the assessee. It is evident from the above that it was not possible to hold that the assessee received over and above the amount paid by Shri Jitendra Nath for flat No. 4G. In the face of his statement that he received back the entire amount in full, then where is the question of any on-money that has passed 16. The next witness is Wg. Cdr. J.R. Kapoor. He booked a flat No. 13C.He paid in all Rs. 75,000 on different dates as follows: Rs. At page 1028 of paper book No. 2, at item No. 7, Shri Kapoor mentioned that flat No. 13C was booked at the rate of Rs. 125 per sq. ft. Later on 1-2-1978 it was mistakenly mentioned as 1-1-1978. Shri Kapoor wrote to the ITO saying that he booked the flat through Shri Vishwa Mitter Bhasin of New Delhi, who had then indicated that the prevailing competitive rate was Rs. 125 per sq. ft. on 16-4-197 1. He had no other documentary proof except the application to the assessee. He further stated that the assessee issued receipts for the amounts paid by him.
The receipt is on record and it shows receipt of Rs. 75,000 in all evidenced by cheques. Mr. Kapoor surrendered this flat and got back the entire amount as per his statement, again by cheque from the assessee.
One important thing that emerges from the letters of Mr. Kapoor is that the payments made by him do not tally at all with the schedule of rates mentioned in the pamphlet. The second is that Mr. Kapoor mentioned the rate only from his memory. The third aspect is that he received whatever he paid and there again there is no question of any on-money passing between the parties. The receipt and payments are evidenced by cheques.
Flat No. 13C having been surrendered was taken by Rajiv Bros. & Company. Statement of [Shri Shyam Lal of Rajiv Bros. & Co. was recorded. He testified that the rate at which the building was allotted to him was Rs. 100 per sq. ft. and this was the rate at which the transaction of the original allottees was also [recorded. The agreement entered into with Rajiv Bros. & Co. also indicates the same rate of Rs. 100 per sq. ft. It is worthwhile mentioning that the copy of this agreement was seized by the department during the search. It is clear from the perusal of the evidence of the allottee of flat No. 13C that there is hardly any evidence of on-money having passed.
17. We now come to the evidence of Mr. Om Prakash Gupta, the original allottee of flat No 7H. To the question as to what is the rate at which the flat No. 7H was booked by him, he stated that: 'I think it was Rs. 137.50 per sq. ft.'. He denied to have given any on-money over and above the sum of Rs. 60,000 paid by him along with his co-owner Smt.
Chandan Agarwal. He, however, very candidly admitted that the rate of Rs. 137.50 was only quoted and not the final rate. He, however, tried to stick to his original statement that flat No. 7H was booked not at the rate of Rs. 103 per sq. ft., the recorded consideration in the assessee's books. But once again when cross-examined on behalf of the assessee the witness stated that he has no other evidence showing the rate of Rs. 137.50 per sq. ft. He mentioned that he had only receipts.
The receipts, however, do not indicate the rate. From a careful analysis of the above evidence, it is not possible to rely on the evidence of Mr. Om Prakash Gupta so far as the rate is concerned. He has been prevaricating in his statements. At one stage he mentioned the rate as the rate given by him. Later on, he mentioned that it was only quoted rate, subject to negotiation. The very statement that he thought the rate was Rs. 137.50 per sq. ft. and the absence of any other evidence about the rate, it is difficult to accept that the rate was higher than what was mentioned in the documents. Most important factor to be considered is that he denied to have paid any on-money over and above the sum paid by cheque to the assessee.
Then we have the agreement for sale of flat No. 7H after the surrender of the same flat by Shri Om Prakash Gupta, the original allottee. This agreement shows the rate at Rs. 103 per sq. ft. It was recovered in the search operations. Shri Kanwal Krishan Duggal does not appear to have been examined.
18. Mr. M.K. Bhatia who was subsequent allottee of flat No. 4F was examined and he stated that he paid at the rate of Rs. 111 per sq. ft.
and he denied to have paid any on-money. The total payment had also been confirmed. Nothing very material is brought out in cross-examination by the ITO.19. Flat No. 9C was originally booked by Mr. Manohar Bhatia. He stated that he booked the flat at Rs. 105 per sq. ft. and he denied to have made any payment of on-money.
The total payment made by him was Rs. 17,000. According to the contention of the revenue the sum of Rs. 17,000 was worked out as per the schedule in the pamphlet. It is very difficult to correlate the payments made in advance and find out the rate at which the flat was agreed to be sold. We have seen the payments made by various allottees and there is no coherence or consistency in the payments. Sometimes the payments are more, sometimes they are less. Evidently, the entire cost was sought to be adjusted at the time of final payment. Therefore, not much of significance can be attached to the payments and, at any rate, from a payment made on a particular date, no inference can be drawn about the rate at which the assessee sold the flats. Otherwise the evidence of Mr. Manohar Bhatia does not throw any light on the question canvassed by the revenue. On the other hand, when he surrendered the flat, he received the entire money back and here again we have to put a question as to how there can be on-money if the entire money was paid back.
After the surrender of flat No. 9C, it was sold to Dr. Bhag Singh Gulshan. Copy of the agreement was also seized by the revenue at the time of search. This agreement is at page 1090 of the paper book No. 2.
There is nothing incriminating flowing from the documents connected with this flat.
20. The statement of Shri Satish Chandra, original allottee of flat Nos. 9G and 13B have been referred. The agreement to sell these flats is available from the seized records. The evidence of Shri Satish Chandra is sought to be relied on by the revenue for the purpose of showing that the instalments paid by him correspond to the schedule of payment mentioned in the pamphlet and also the rates. But on a careful analysis it is not found to be so. The total amount paid by him is Rs. 59,400 as follows: For flat No. 13B, he has paid Rs. 61,427. When he surrendered the flat he got back Rs. 1,20,837. There appeared to be small deductions out of the total payments of Rs. 1,21,674. The instalments paid by him do not correspond to the schedule of payments at all mentioned in the pamphlet. With regard to the rate this gentleman stick to his entire statement that the deal was at the rate of Rs. 135 per sq. ft. through Malik Estate Agents as far as he remembered. Obviously, the assessee has not been named. It is also undisputed that the assessee did not appoint any brokers. Therefore, it is evident that the assessee did not quote the rate nor charged the same. It is, therefore, difficult to accept his statement with regard to any on-money said to have been received by the assessee.
The position with regard to flat No. 13B is also more or less the same as in the case of flat No. 9G since both the flats were originally taken by Shri Satish Chandra, except that we may mention that when the money was paid back to Shri Satish Chandra the receipt was given for the same amount which was paid by him. Flat No. 9G was taken by Wg.
Cdr. B.S. Rao at the rate of Rs. 110 per sq. ft. and this is supported by the agreement and the receipt. Flat No. 13C was taken by Shri Satish Galhota.
21. Shrimati Santosh Puri, who was the subsequent allottee of flat No.4D and the original allottee Shri K.K. Kapoor were examined. Shri K.K.Kapoor mentioned that the flat was booked at Rs. 120 per sq. ft.
approximately. He further mentioned that he paid Rs. 10,000 for the flat No. 4D and he got the same amount in December, 1971 and that he did not pay any extra money nor received back any extra money. The assessee put a question in the cross-examination that the flat No. 4D and Flat No. 9H (Shri K.K. Kapoor's brother Shri D.L. Kapoor) were booked on the same day through Mrs. Gian Devi, mother of Vishwa Mitter Bhasin. The witness, however, denied knowledge though he was not very categorical. In the further cross-examination by the ITO he has stated two things, one, that he did not go to the assessee for effecting the transfer of the flat originally booked in his name in favour of Shrimati Santosh Puri. Secondly, he did not know Mrs. Gian Devi. One thing, however, that is clear from his evidence is that the rate at which he had booked flat was stated to be approximately 120 per sq. ft.
but most important thing that he has admitted that whatever he paid, he got back and he did not pay any on-money. There is also suggestion and there is some evidence in the shape of letter, dated 2-4-1971 from Mrs.
Gian Devi that the flat was not booked directly by Mr. K.K. Kapoor but through Mrs. Gian Devi. The same is the position with regard to the flat No. 9H booked by his brother Shri O.P. Kapoor. The evidence of this witness also is somewhat relevant for the purpose of finding out whether the assessee got the flats in its own name or they were re-allotted at the instance of the original allottee since there is also controversy on this issue to some extent.
Smt. Santosh Puri was also examined. She stated that she got the flat at Rs. 117 per sq. ft. and she has also mentioned the total amount paid by her. She has also admitted that she got the property at the instance of the original allottee though the agreement to purchase was with the assessee. She, however, denied that she purchased the property through the broker, Mr. Sondhi, and that the transaction was directly with the Builders, i.e., Hansalaya Properties. She also denied to have any acquittance with Mr. K.K. Kapoor, the original allottee. According to her statement she got the property directly from the assessee. The statement of this witness clearly shows that the property was transferred at Rs. 117 per sq. ft. and that the entire money was paid by her at the rate and the same is recorded in the assessee's books.
22. One Shri Parminder Sachdeva, partner of Sachdevson & Co., has also purchased the property at Rs. 125 per sq. ft. It relates to flat No.13F and he has categorically stated that there was no on-money paid by him. They were not the first allottees. Malik Estate Agents arranged for the transfer of the flat from the previous owner. The first instalment of Rs. 15,000 was paid. The first allottee of fiat No. 13F is one Shri Gurdev Singh and his evidence does not throw any light except that he paid Rs. 10,000 and he got back Rs. 10,000 at the time of the transfer of the flat. He, however, stated that he surrendered the fiat directly to the Builder and he denied any knowledge of- the existence of Sachdevson & Co. to whom the flat was subsequently transferred. As already mentioned this is one of the points taken up in deciding the issue.
23. Then we have the statement of Mr. Gurnam Singh, the original allottee of flat No. 6E. He also did "not say anything about the rate at which the property was sold. He testified to the payment of the instalment money and the return of the [same when he surrendered the flat. To a question put to him as to whether the amount of Rs. 13,110 paid by him on 12-1-1973 as further instalment would work out to 10 per cent of the total consideration in which case the rate at which the flat was taken would work out to Rs. 147.50 per sq. ft. He replied: 'Since the papers have been returned to them at the time of receiving back the money, I cannot say anything definitely'. It may be noted here that the 10 per cent cost would not work out to Rs. 13,110 but it is still less, it would come to only Rs. 12,061.
Mrs. Sarita Sarna is the subsequent allottee of flat No. 6E and she does not seem to have been examined. However, the receipt and the agreement are on record, having been seized from the records by the ITO at the time of the search. The rate of Rs. 110 per sq. ft. is shown.
The receipt shows payment of Rs. 80,960 and it is quite in conformity with the rate.
24. Flat No. 7G was originally allotted to Mr. Mahendra Gupta of Aryan Bros, and his statement was recorded by the ITO. The subsequent allottee is Mrs. Rama Sehgal. Shri Mahendra Gupta's statement is found at pages 1214 and 1215 of the paper book No. 2 filed by the assessee.
Originally he filed an affidavit wherein he stated that the flat was booked by him at the rate of Rs. 137.50 per sq. ft. and at the time of booking, the payment in lump sum was made but in the examination by the ITO, he was not able to tell as to on what basis he mentioned the rate.
According to him he surrendered the original receipts issued by the Builders at the time of transfer of the flat. However, he admitted to have received back whatever he paid. This witness does not seem to have been cross-examined by the assessee. The evidentiary value of the statement of Shri Mahendra Gupta is that he remembered to have booked the flat at Rs. 137.50 per sq. ft. but there is no evidence in support of the claim. But his statement is totally belied by the very fact that whatever he paid according to him he received back from the assessee at the time of the transfer. He did not mention anything of payment of any extra money nor a question was put to him. In such circumstances, it is difficult to accept the statement of Shri Mahendra Gupta that he paid more than what is recorded. Mrs. Rama Sehgal as already stated is the subsequent allottee of flat No. 7G and she has not been examined.
25. Flat No. 6G was taken by Miss Meeta Sawhney and she being a minor, her guardian Mr. Baldev Raj Sawhney had deposed. His statement was first of all recorded by the ITO on 13-2-1978. He mentioned that the flat was booked at Rs. 125 per sq. ft. The ITO put a question to him as to why he was charged at Rs. 125 per sq. ft. whereas in the month of January, 1974 flat No. 6D was booked at Rs. 160 per sq. ft. His answer was that the market rate on the date of purchase of the flat by him was only Rs. 125 per sq. ft. He has also given the statement showing the payments which are not in dispute. Shri Baldev Raj Sawhney was cross-examined by the assessee. It transpires from the statement that flat No. 6G was booked for Miss Meeta Sawhney at Rs. 105 per sq. ft.
but it was subsequently booked in the name of Kashyap Metal Allied Industries (P.) Ltd. at Rs. 125 per sq. ft. He has specifically denied to have paid any on-money either at the time of the original booking or at the time of subsequent allotment. He has also testified to the exact amount paid in the first instance by Miss Meeta Sawhney and subsequently by the company. The ITO in further questioning, directed him to answer as to how he originally stated on 13-2-1978 that the flat was booked for his daughter at Rs. 110 per sq. ft. which might vary Rs. 2 on either side. He answered that he mentioned the rate on 13-2-1978 out of memory and that after verifying from the records, he found that the rate was Rs. 105 per sq. ft. The ITO tried to grill this witness with reference to his previous statement but this witness withstood the questioning by the ITO and from a careful analysis of his statement, it is clear that this witness is very truthful. Further what transpires from his statement is that the original booking was Rs. 105 per sq. ft.
and subsequently he himself got the same flat at Rs. 125 per sq. ft.
for his company. This shows that the assessee has recorded whatever was the consideration. It is also clear from the evidence that even at the earliest stage he mentioned the rate at Rs. 110 per sq. ft.
approximately, and he made it clear that there might be some variation.
The actual rate as per his statement is Rs. 105 per sq. ft. and there is not much of difference at all.
26. Mrs. Ranbir Kaur and others, who were subsequent allottees of flat No. 13G mentioned in their letter addressed to the ITO that they booked flat Nos. 13E and 13G at the rate of Rs. 123 per sq. ft. and they have also given the statement showing the payments. Flat No. 13E was surrendered in favour of Shri R.S. Phoolka. None of these people have been examined.
27. One Mr. Mohinder Pal was also examined relating to flat No. 4F but his evidence is only for the purpose of showing that the flat was surrendered by him directly to the assessee and he has not re-transferred it to somebody, namely, Shri M.K. Bhatia. The assessee tried to prove that the re-transfer was made through Malik Estate Agents. Malik Estate Agents also corroborated the statement of the assessee.
28. One Mayfair & Co. appears to have written a letter in January, 1974 mentioning therein the total commission payable to them. The statement shows the rates at which the flats were booked. Evidently, these rates tally with the rates shown by the assessee. Malik Estate Agent mentioned in their letter, dated 19-12-1975 that they have re-booked the flats.
29. From the analysis of the above evidence, it is extremely difficult to hold that the assessee received any on-money. In most of the cases the rates quoted are only from memory without any corroborating evidence. In many of the cases, it was in a most uncertain manner that the rates were mentioned. In one or two cases no doubt the rate was mentioned and in the case of Shri Jitender Nath he seems to have supported the rates with reference to the schedule of rates. It is also relevant at this stage to mention that the quoted rates are mostly available from the pamphlet. The assessee denied the knowledge of the pamphlet, as already mentioned earlier. It may be, as suggested by the assessee, that somebody wanted to make profit by quoting the rates for the flats. That does not show that the assessee booked the flats at those rates. It is just possible that some middlemen might have got the benefit and the so-called quotation by various persons may be the rates quoted by the middlemen and not the assessee. In all cases, however, one fact which is running common is that all of them denied to have paid any on-money either at the time of original booking or in cases of transfers or at the time of re-transfer. All of them uniformly have admitted to have paid the moneys through cheques and received the same amount by cheques. They have accepted the statement of accounts shown by the assessee. All the receipts show the actual payments made by them to the assessee and the payments made by the assessee to them in the cases of re-transfers. It is true that normally there cannot be any direct evidence of payment and/or receipt of on-money but there must be very cogent circumstances or indirect evidence leading to such a conclusion. In our opinion, there is no such evidence at all in this case. The fact that some inconsistencies in the stand of the assessee or that the witnesses have changed their version to some extent from what they stated originally, cannot be factors for coming to a conclusion on the question of on-money. Similarly, the notorious fact that 'there is on-money in. the transactions relating to immovable properties in India' cannot be used for the purpose of recording a finding that the assessee received on-money. In a case of this nature, it must be found on a reasonable certainty that the assessee received on-money in which case alone be can be taxed. The argument of the revenue that in many cases the fiats were surrendered to the assessee and the assessee directly re-booked in favour of others and that the assessee's version that they were re-booked at the instances of the original allottees is not correct as appearing from the evidence, in our view would not affect the question at all. It may be that some of the flats were surrendered to the assessee. The assessee, however, categorically stated that they were rebooked at the same rates. There is comment on behalf of the revenue that in view of the rising prices the assessee would not have re-booked the flats at the same price. This argument is too general to be accepted. Firstly, there is no evidence of the prevailing market rates of the flats. Secondly, the concept of multi-storeyed buildings having flats was new to Delhi. Only in recent years that it has developed to a considerable extent. There may be some force in the argument of the assessee's counsel that people were not coming forward enthusiastically for purchase of flats as in the case of Bombay. It is also asserted by the assessee and not disputed by the revenue that the present multi-storeyed building is one of the first few coming up in Delhi and perhaps the assessee was really worried about the sale of the flats. Though it is true that there was some litigation in regard to the land itself, as pointed out by the assessee, we do not think that that had a very serious impact. People came forward for purchasing the flats and in fact most of the flats have been sold. Nevertheless, one important thing to be noticed here is that it took considerable time for disposing of all the flats. This phenomenon does not exist now-a-days. It is common knowledge that it is very difficult to get a flat even in a multi-stored building in Delhi.
The moment an advertisement comes most of the flats are becked. This was not the positioner in the earlier days.
30. The following further circumstances which according to the learned departmental representative are material have also taken into account: a. Blank agreement forms signed by the original allottees were found. We do not think anything turns on it. In fact we have already mentioned that it makes no difference as to whether the assessee itself booked the flats or they were re-booked at the instance of the original allottee. The relevant aspect has already been discussed by us.
b. Only in respect of some flats there are agreements and receipts.
This also is not very relevant nor it throws any remote light on the issue to be considered. Further in respect of those flats, about which the ITO discussed, almost all the agreements in respect of the same have been brought on record. Similarly, all the receipts are on record. There is no point in commenting that agreements and receipts in respect of other cases, where there is no doubt, have not been produced.
c. Copies of agreements relating to the period when the partnership was doing business, were filed. This also does not throw any light at all.
d. Wide fluctuations in the sale price with reference to the market price prevailing in the business in the area of Delhi: This is a very bald contention. There is no evidence whatsoever as to the prevailing market rates. On the other hand, the prevailing market rate is evidenced by the assessee's offer at the particular rates at which the flats were booked or re-booked. There is no evidence contrary to that rate. The assessee relied on a comparative sale rates gathered from similar transactions for the same period entered into by Ashok Estates (P.) Ltd. and Vandana Builders. These lend some support to the assessee's version.
31. Finally, we may take [note of two decisions cited by the learned departmental representative on the question that the Tribunal can take judicial note of notorious fact of black money passing in transactions relating to immovable properties. The first one is in the case of Mahmudabad Properties (P.) Ltd. v. CIT  85 ITR 500 (Cal.). In that case the Tribunal took note of the fact that land prices in Calcutta during the period 1954 to 1962 were increasing. The Hon'ble High Court considered this aspect from pages 515 to 521. It is very interesting discussion. Many English rulings have been considered. From the discussion of the Hon'ble Judges in that case, it is clear that though personal knowledge of Judge cannot be utilised for deciding a matter but local knowledge of the Judges or the Tribunal having jurisdiction, is quite admissible. However, it is clear that a general state of affairs can be taken note of. This may be one of the many factors which will have to be taken into account in recording a finding of fact. But it is altogether incorrect to consider that the assessee is one of such persons who is indulging in black money transactions. As mentioned earlier all that we can take note of is that black money is passing in transactions relating to immovable properties in the country. We cannot go further. That fact certainly is of some relevance but in the absence of any other evidence, that fact loses its importance.
The other decision referred to us is the well-known decision of the Supreme Court in the case of K.P. Varghese v. ITO  131 1TR 597.
This decision really does not throw much light on the question of taking judicial note of the notorious facts.
32. We have also to view the other circumstances which are in favour of the assessee in this case. Admittedly, no cash, no investments, no jewellery were found during the search conducted by the department, All the agreements and all other papers relevant to the transactions have been seized by the department and on them only the assessee relied. In no other case of a flat owner, any assessment seems to have been made on the basis that he either paid on-money or received the same. At least nothing has been brought on record. It is also noticeable from the record that in respect of many other flats the rate at which the assessee booked or re-booked the flats was higher than what the original rate was. In other words, the assessee recorded higher price in respect of many other flats. This would show that the assessee was recording the correct rates at which the flats were being sold. In the circumstances, it is not possible to record a finding of fact that the assessee received any on-money. As the matter is essentially one of question of fact it is unnecessary to load this order with any case law though both the parties referred to some rulings. The rulings merely lay down well established principles as to how a question of fact has to be appreciated. A question of fact of this nature, as previously mentioned by us, has to be determined with reference to the direct, indirect and circumstantial evidence. Having taken all this into account and having considered the submissions made by both the parties, we have come to the conclusion that there is no justification for recording a finding that the assessee received on-money, i.e., more than what has been recorded as the sale consideration of the booking of the flats, and, therefore, there is no warrant for the addition as has been done by the authorities below. We, accordingly, agree with the view of the learned Accountant Member.
33. The controversy regarding the first point of difference has, mainly, centred round four contentions, namely: (i) What is the price for which the late Vadhera brought in his property in the partnership by way of his capital contribution (ii) What is the character of the property in the hands of the firm brought in by late Vadhera in the first instance as a matter of fact or law (iii) Assuming that the character of the property in the hands of the assessee-firm at the first instance, was 'capital asset', whether the assessee will have the right to revalue it at the market rate as on the date of the property being converted into stock-in-trade and (iv) Whether, when accounts were maintained by the assessee-firm regularly and the value of the property is shown at Rs. 2,01,000 for successive years, the assessee is shut out from altering its stand in 1978, i.e., long after the death of late Vadhera and even after the completion of the multi-storeyed building.
34. Coming to Clause 3 of the deed of the partnership on which some reliance has been placed by the assessee, we are unable to agree with the view taken by the learned Accountant Member so far as this clause is concerned. It is very simple in its language. It was understood by Shri Vadhera that the value should be taken as is to be taken in the wealth-tax return. There is no ambiguity at all. In fact the value taken was Rs. 2,01,000 in the wealth-tax return and that is the value taken as the capital of Mr. Vadhera in the books of the assessee-firm.
In fact the wealth-tax assessment was also done for the assessment year 1970-71 during his lifetime. He never thought of changing that value and increase his capital contribution accordingly. The same position continued till the year 1978.
Our attention was invited to some of the observations in the GT Appeal No. 19 (Delhi) of 1978-79 decided by the Delhi Bench 'E' in its order dated 21-2-1980 (to which the President is a party). The question was whether there was a deemed gift by the late Shri H.R. Vadhera. The question sought to be canvassed on the basis of some observations in the aforesaid appellate order was that what was understood by Clause 3 is the value determined in the wealth-tax proceedings. Since in the wealth-tax proceedings, the revenue determined the value at a much higher figure, which correspond to the figure now given by the assessee, the same should be taken in the income-tax proceedings. But as rightly pointed out, the observations were not in the nature of any decision on the interpretation of Clause 3. In our opinion, Clause 3 is unequivocal and unambiguous. This clause has been rightly understood to mean by all the partners of the assessee-firm including late Vadhera during his lifetime, that the price for which he had brought in his property to the partnership firm was Rs. 2,01,000 by which amount his capital account was credited. We, therefore, do not agree that Clause 3 should be understood in the manner suggested by the assessee.
The real contention relating to the first point of difference is, thus, whether the premises 15, Barakhamba Road, New Delhi, brought in by the partner, the late Vadhera, into the firm by way of his capital contribution was or was not 'capital asset' of the firm, in the first instance. In order to appreciate this aspect of the matter, it is desirable to refer, in brief, to certain facts and legal propositions about which there cannot, possibly, be any dispute between the parties, The late Shri H.R. Vadhera was, undoubtedly, the owner of the property, 15, Barakhamba Road, New Delhi. He was residing in a bungalow which stood as a super-structure on the land. There is no material on record to indicate that the property was not his capital asset. The above property has, admittedly, been brought in by the late Vadhera to the partnership-fold by way of his capital contribution. Though the transaction cannot be described as a sale by late Vadhera to the partnership firm, it cannot be denied that after late Vadhera brought in the property to the partnership-fold, the property became the partnership property within the meaning of Section 14 of the Indian Partnership Act.
There is nothing in law prohibiting sale of a capital asset or stock-in-trade by a partner to a partnership firm or vice versa. Nor, is there any prohibition in a partner bringing in his capital asset or stock-in-trade into the partnership by way of his capital contribution.
The question that arises for consideration is whether the character of the property in the hands of the partnership will depend upon the character of the property in the hands of the partner who sold or brought it or whether it will depend upon the nature of the business activities carried on by the firm. In this context the debate appears to us to be of academic nature inasmuch as the expression 'capital asset' has been defined in Section 2(14) of the Act. This definition is a negative definition in the sense that property of any kind held by an assessee has been defined to mean 'capital asset' except those which are specifically excluded. Some of the exclusions are, which are pertinent for the purpose of these appeals, 'any stock-in-trade, consumable stores or raw materials held for the purpose of his business or profession'. In the circumstances, the question to be answered is not as to what was the character of the property in the hands of the partner who brought in the property into the partnership firm but whether the partnership-firm held or could be said to have held the said property as its stock-in-trade, consumable stores or raw material for the purpose of its business.
35. In order to appreciate this aspect of the matter, it is desirable to refer to the relevant facts, in brief, once again. The deed of partnership was drawn on 8-8-1970 specifically with a view to carry on business in real estate, i.e., by constructing a multi-storeyed building on the premises, 15, Barakhamba Road, New Delhi, the property brought in by the late Vadhera, and by the sale of flats in the multi-storeyed building. In the circumstances, it is not possible to accept Shri Sharma's contention that the partnership firm held this property even for a second for any purpose other than the purpose of carrying on its business in real estate, i.e., by using the property as the stock-in-trade, constructing a multi-storeyed building and by selling the flats so constructed in the multi-storeyed building.
It may be mentioned that Shri Sharma was vehemently arguing that the property contributed by a partner will always constitute capital asset in the hands of the firm irrespective of the nature of the partnership business. However, he was not able to support his proposition with any authority. Shri Sharma had also contended that even assuming that the partnership accepted this property with a view to using it as stock-in-trade, the property did not become the stock-in-trade until the business in real estate actually commenced. Here again, we find it difficult to accept Shri Sharma's contention inasmuch as the business in real estate commenced on the date when the partnership purchased or acquired land as the acquisition of the land itself is a step in the direction of starting the business in real estate.
In this context the observations of the Hon'ble Supreme Court in the case of Bist & Sons v. CIT  116 ITR 131, are very pertinent. They read as: ... It may be, as is quite often said, that a firm is merely a compendious description of the individuals who carry on the partnership business. But under the IT Act, a firm is a distinct assessable entity. Section 3 of the Indian IT Act, 1922, treats it as such, and the entire process of computation of the income of a firm proceeds on the basis that it is a distinct assessable entity.
In that respect it is distinct even from its partners: CIT v. A.W. Figgies & Co.  24 ITR 405 (SC)....
In the premises it is not possible to accept that what the late Vadhera could have done had he carried on the business himself, the partnership firm could also do the same thing. The cost of the property so far as the partnership is concerned was Rs. 2,01,000. The firm would have the right to revalue the property only if the property were taken initially to be the capital asset and converted into stock-in-trade subsequently and not otherwise. In view of what has been stated above, we are in agreement with the learned Judicial Member that so far as the value of the property is concerned, it has to be taken at Rs. 2,01,000 for the purpose of computing the profits of the venture.
36. It may be observed before concluding that there is really no hardship caused to the assessee if the value of the property is taken at Rs. 2,01,000 for the purpose of computing its business profits. As already stated, the late Vadhera as the assessee and the partnership firm as an assessee are two different assessable entities. There is no suggestion that the partnership-firm has incurred any liability more than Rs. 2,01,000 in respect of the premises, 15, Barakhamba Road, New Delhi. Therefore, when that amount is taken as the cost of the property in the hands of the partnership firm for the purpose of computing its profits, there is no equity involved. What happened in the hands of the legal heirs of the late Vadhera is wholly an extraneous matter.
1. There has been a difference of opinion between the two members constituting the Bench on two points. The following agreed questions on which difference has arisen are accordingly referred to the President for decision by the Third Member: 1. Whether, the assessee-firm is entitled to deduction of Rs. 2,01,000 or Rs. 36,61,625 as the cost of land on which the multi-storey building was constructed on the following grounds: (b) The land having been brought on by Shri H.R. Vadhera as stock-in-trade or capital asset (c) If brought in as a capital asset, then on its being converted into stock-in-trade 2. Whether, there is any evidence of on-money being charged and if so, whether addition sustained by Judicial Member is justified Per Shri B.S. Ahuja, Judicial Member - These five appeals by the assessee, a firm, pertain to the assessment years 1972-73, 1974-75 to 1977-78 respectively. For the sake of convenience they are being disposed of by this common order.
2. The assessee-firm has been constituted with effect from 8-8-1970, vide deed of partnership executed from the said date and Clause II of partnership deed reads as under: Business of the partnership shall be of erecting on ground comprised in Bungalow No. 15, Barakhamba Road, a multi-storeyed commercial building and to do other type of business or businesses and activities during the course of partnership business.
3. The assessee-firm continues to be engaged in the business of construction of multi-storeyed building complex consisting of show-rooms, commercial flats and hotel project. As part of the business activities the assessee entered into an agreement to sell show-rooms/flats, etc., in the proposed building on ownership basis, the sale consideration being payable in instalments as stipulated in the agreement. The assessee filed copies of the trading and profit and loss account and balance sheets for all the years showing profit by applying G. P. rate of 12 per cent. The ITO held that Section 145 of the Act applied and 12 per cent rate of G.P. shown was too low. The assessment for the assessment years 1972-73 and 1973-74 were finalised by taking the G.P. rate of 50 per cent which was reduced by the AAC to 30 per cent. However, as on 31-5-1977 major part of the construction work had been completed and it was decided between the assessee and department that a consolidated statement of profit and loss account as on 31-5-1977 should be submitted and the assessments should be made for all the years income on that basis.
The assessee accordingly filed a consolidated profit and loss account as on 31-5-1977 which is as follows: Expenditure Amount Receipts Amount Rs. Rs. To amount spent on flat owners 1,79,29,486.20 constructed and Hansalaya 1,07,57,806.67 profits as per Annexure 'D' To expenses attached 2,70,566.67 already incurred parties account receipts from but yet not debited flat owners as to construction a/c per Annexure 'E' as per Annexure 'A' attached 11,50,248.80 attached.
36,97,943.11 per Annexure 'B' cost 59,811 sq. attached.
10,97,176.63 ft. @ 80.10 per sq. ft.
47,90,861.10 Subsequently, the assessee also filed revised consolidated profit and loss account on 10-3-1978. In the revised consolidated profit and loss account, the assessee has revised the cost of land from Rs. 2,01,000 to Rs. 36,61,625. Apart from this, the assessee has also varied figures of closing stock, and net profit.
4. The ITO held that the stand of the assessee for revision of the cost of land is without any basis and cannot be accepted. Therefore, he took the original consolidated profit and loss account as the basis for computation of total profits on the entire venture.
5 to 9 [These paras are not reproduced here as they involve minor issues.] 10. The ITO then addressed himself to the question of revision of cost of land. In the original profit and loss account, submitted on 17-9-1977, the cost of land was debited at Rs. 2,01,000. Subsequently, by letter, dated 10-3-1978, the assessee filed a revised consolidated profit and loss account showing the cost of land at Rs. 36,61,625. In support of the revised cost of land, the assessee stated that as per Clause 3 of the partnership deed dated 8-8-1970 which reads as follows: the land situated at 15, Barakhamba Road, New Delhi shall be property of the firm and as taken in the wealth-tax return of Sh.
Hans Raj Vadhera and shall be credited to his capital account in the books of the firm. Therefore, the respective partners may contribute such capital as they mutually agreed upon.
Late Hans Raj Vadhera contributed the plot of land and accordingly a sum of Rs. 2,01,000 was credited in his capital account on the formation of partnership as this was the value declared in the wealth-tax return for the assessment year 1970-71. It was urged that since the value of the plot vide Clause 3 above was to be taken at the market value as determined, the same should be taken at Rs. 36,61,625 as determined by their approved valuer. The ITO did not accept this contention for the following reasons: 1. Entries passed in the books of the assessee-firm are on the basis of valuation of the plot as shown by them. Even in the wealth-tax return filed by Sh. Hans Raj Vadhera, the value of the property at 15, Barakhamba Road, New Delhi was shown at Rs. 2,01,000 and the same amount was credited in his personal account.
2. As per Clause 3 of the partnership deed the value of the plot at 15, Barakhamba Road, New Delhi, had to be taken as shown in the wealth-tax return and it could not be the subject-matter of variation in any subsequent proceedings. The value shown at Rs. 2,01,000 being the cost of land is fixed once for all and it cannot be changed time and again. Assessee's own conduct in crediting the same amount to the credit of Sh. Hans Raj Vadhera goes to prove that it was the correct amount. It will not be out of place to mention here that Sh. Hans Raj Vadhera had shown the value of the plot in his W.T. return for the assessment year 1970-71 at figure of Rs. 2,01,000 and the same was adopted by the WTO at a figure of Rs. 2,75,000. This order was passed by the WTO as back as 1971. For all these years, assessee has not objected to the valuation of the cost of land and has never tried to vary this figure. Even in the consolidated profit and loss account submitted in September, 1977 which was prepared as on 31-5-77 the assessee valued the cost of land at Rs. 2,01,000 and not Rs. 36,61,625. It amply shows that for all practical purposes the assessee has taken the value at Rs. 2,01,000 as final and permanent and that is why he was given credit for Rs. 2,01,000 for all these years.
11. The IAC to whom this question was referred under Section 144B of the Act, agreed with the ITO and held that the assessee's sole purpose of adopting the revised value of land is only to unwarrantedly bring down the incidence of tax and to confuse the issue. If the intention of the partners was to adopt the market value of the land then the valuation of the land should have been got done in 1970 or so and not in 1978.
12 to 14 [These paras are not reproduced here as they involve minor issues.] 15. One of the allegations against Hansalaya Properties was that it has charged 'on-money' for the booking of the flats. The suspicion that 'on money' must have been charged by the assessee arises from the fact that there is large variation in the rate per sq. ft. charged in respect of flats on the same floor for the same area, similarly circumstanced and sold almost at the same time. It was also noticed that in many instances higher rate per sq. ft. was charged earlier and similar flats were sold or booked subsequently at the same rate or much lower rate.
In some cases, although a time gap between the sale and the booking of similar flats is more than 2 to 3 years yet the same rate or even lower rate per sq. ft. has been charged in the transactions effected later.
Apart from this during the course of investigation, it also came to light that in certain cases where original allottees have surrendered their flats, the same have been resold by the builder either at the same price or at the lower price. It is incomprehensible as to why a prudent businessman would charge the same rate from the subsequent buyer even after a lapse of more than two years in many cases and why not the then prevailing market price.
16. The ITO, accordingly, issued a detailed questionnaire to the assessee calling for explanation and the assessee filed reply, dated 8-3-1978. The ITO has dealt with the matter concerning the sale of different flats from pages 33 to 66. It is not necessary to clutter this order with the entire narration and the finding of the ITO on sale of each of these flats mentioned in his order. As an "example, we reproduce what is stated by the ITO in paras 55-57 in respect of flat No. 4-G: ... As per the information supplied by the assessee flat No. 4-G, was originally booked in August, 1970 at the rate of Rs. 120 per sq.
ft. in the name of Nath Bros, and subsequently the same was re-booked in the name of Mrs. Bimble Swani Sinha at the same rate.
In this connection, Nath Bros, was summoned under Section 131 of the I.T. Act. He was examined on oath. He has deposed that flat No. 4-G was booked by them on 25-8-1970 @ Rs. 147.50 on an affidavit. In support of the rate of Rs. 147.50 Mr. Jatinder Nath, partner of Nath Bros, have produced a schedule showing the rate per sq. ft. for various floors and the mode of payments, etc. As per the schedule booking at 4th floor was offered to be done @ Rs. 147.50. Nath Bros, made a payment of Rs. 16,077 an initial payment at the time of booking, @ Rs. 147.50 per sq. ft. This figure according to him was calculated by the builder and they were asked to pay for that amount and accordingly the payment was made. Hansalaya Properties have issued a receipt for Rs. 16,077 but no rate was mentioned by them in the receipt issued by the builder to Nath Bros. Subsequently, Nath Bros, made more payment of Rs. 16,000 each on 11-1-1971 and 19-10-1971 respectively. No agreement was concluded by them with the builder.
Since during the time August, 1970 the booking was done @ Rs. 147.50, it is not understandable as to how after a lapse of 3 years in April, 1973 the flat was re-booked @ Rs. 120. It is incomprehensible as to why a prudent businessman should not take advantage of the fact that there is an appreciable increase in price of flat in multi-storeyed building in commercial area. Assessee was required to explain as to under what circumstances the booking was done at Rs. 120 per sq. ft. in April, 1973 when the firm had already charged Rs. 147.50 in August, 1970. They were required to show cause as to why the rate of Rs. 147.50 is not substituted in place of Rs. 120 and why it should not be presumed they have charged on money minimum to this extent on the sale of flat.
The assessee has challenged the veracity of the statement of Mr.
Nath of Nath Bros, on the following grounds: The schedule contains the rate for many floors which was not for sale at all. Like 15 floors which is service floor having no flats for sale, and the schedule contains rate only upto 18th floors whereas they have 21 floors. According to assessee the amount of Rs. 16,000 was paid by Nath Bros, on their own at the time of August, 1970 and did not tally with 10 per cent of the price for which the flat is said to have been booked by him.
17. The ITO offered an opportunity of cross-examining Nath Bros, but the assessee did not avail of that opportunity. The ITO, accordingly, concluded that there was an understatement of consideration in respect of this flat which was booked at Rs. 147.50 per sq. ft. but was shown at Rs. 120 per sq. ft., the balance having been taken as 'on-money' amounting to Rs. 29,700. This happened in the assessment year 1974-75.
He similarly discussed flat Nos. 13-C, 7-H, 4-F, 9-C, 9-G, 13-B, 4-D, 13-F, 6-G, 6-E, 7-G and 13-G and came to the conclusion that the assessee had charged 'on-money' at-the time of booking of flats at rates ranging from 10 per cent to 25 per cent of the total investment.
He also came to the conclusion that the assessee had been booking the flats at different rates and not in accordance with the rates mentioned in the schedule. This also showed that he was charging 'on-money' at the time of booking of the flats. He, accordingly, worked out the 'on-money' on the mean of 10 and 25, i.e., 15 per cent of the total consideration on the booking of the flats. This addition does not cover the addition made on account of 'on-money' charged by the assessee in respect of those flats which were originally allotted but subsequently surrendered and re-allotted.
18. The IAC to whom the matter was referred under Section 144B held that there could be no direct evidence of taking of 'on-money' by the assessee-firm and this could only be gathered by the overwhelming circumstantial evidence which had actually been done by the ITO.Looking to the totality of the facts mentioned by the ITO, the preponderance of probability was in favour of taking of 'on-money' by the assessee-firm. The ITO, accordingly, computed the total income of each year firstly on the basis of the consolidated profit and loss account in the proportion of receipts in each of the years and then made the additions. The disallowance is made and discussed earlier were adjusted in the consolidated profit and loss account for working out the income in each year.
19. The assessee came in appeal before the Commissioner (Appeals) and challenged the order of the ITO for each of the years. The Commissioner (Appeals) held that the manner in which the accounts had been maintained by the assessee did not enable the ITO to arrive at the true profit in each year and, therefore, the ITO was entitled to make the assessments on the basis of the consolidated profit and loss account for the entire period, as has been done by him. The Commissioner (Appeals) first dealt with the cost of land adopted at Rs. 2,01,000 in the consolidated profit and loss account and taken at Rs. 36,61,625 in the revised consolidated profit and loss account. The Commissioner (Appeals) observed that the plot of land became the property of the firm with effect from 8-8-1970 and the last valuation date under the Wealth-tax Act when Hans Raj Vadhera was the owner of the property was for the assessment year 1970-71. In the wealth-tax return for the assessment year 1970-71, Hans Raj Vadhera had declared the value of property at 15, Barakhamba Road, New Delhi at Rs. 2,01,000. As per Clause (3) of the partnership deed, the account of Hans Raj Vadhera was credited with a sum of Rs. 2,01,000 as initially agreed upon and in the partnership books the property account was debited by a sum of Rs. 2,01,000. Hans Raj Vadhera died on 9-11-1971 and till then the consideration for transfer of property was taken at Rs. 2,01,000 both by the deceased Hans Raj Vadhera and the firm, i.e., the assessee.
After his death, this plot of land was got valued by Shri B.S. Agarwal, Government (approved) Valuer on 6-3-1978 who determined the value of this plot as on 8-8-1970 at Rs. 36,61,625. The appellant, thereafter, vide their letter, dated 10-3-1978 claimed before the ITO that the cost of land situated at 15-Barakhamba Road, New Delhi, which had been originally adopted at Rs. 2,01,000 should be substituted by the market value determined by their valuer at Rs. 36,61,625. Even though Hans Raj Vadhera died on 9-11-1971, the remaining partners credited the account of Hans Raj Vadhera by a further sum of Rs. 34,60,625.
20. The Commissioner (Appeals) noted that in the original wealth-tax assessment which was completed on 20-3-1971, the value of the land was taken at Rs. 2,75,000 but subsequently, the assessment proceedings were reopened and the WTO had adopted the value of the land at Rs. 44,98,000 which was the value determined by the valuer. Similarly, the estate duty assessment was originally computed on 9-9-1974 in which the value of property at 15-Barakhamba Road, New Delhi, was adopted at Rs. 2,01,000 but subsequently, the estate duty assessment was reopened and the value was adopted by the departmental valuer at Rs. 44,98,000.
Gift-tax proceedings were also initiated against Hans Raj Vadhera for having gifted the land to the partnership concern by adopting the value of the land at Rs. 50 lakhs but the Tribunal held on appeal that there was no gift. It was understood that no capital gains tax proceeding were initiated on the capital gains arising out of the transfer of this property to the partnership concern. The wealth-tax assessments and the estate duty assessments which had been made on the basis of the market value were being contested by the legal heirs of Hans Raj Vadhera. It was urged on behalf of the assessee before the Commissioner (Appeals) that irrespective of the fact that Hans Raj Vadhera had declared the value of this plot of land in his wealth-tax return at Rs. 2,01,000 and that amount had been initially credited to his account during his lifetime, while determining the income of the firm, the market value of the land as on 8-8-1970 should be adopted. Reliance was placed on the decision of the Supreme Court in the case of CIT v. Bai Shirinbai K.Kooka  46 ITR 86 in which it was held that it is the market price of the shares prevailing on the date when the shares were converted into stock-in-trade which should be taken into account while determining the profits of the business. Reliance was also placed on the Supreme Court decision in Kedarnath Jute Mfg. Co. Ltd. v. CAT  82 ITR 363 for the proposition that the assessee is entitled to claim deduction for the market value of the land even if the assessee had not debited the same in the account books. But the Commissioner (Appeals) held that this ruling had no application. The Commissioner (Appeals) held that the case of Bai Shirinbai (supra), was also not applicable on the facts of this case. The deceased Hans Raj Vadhera had agreed the partnership-firm to accept the value for his right in this property for a consideration which was fixed at the amount shown in the wealth-tax return filed by him, i.e., Rs. 2,01,000. This is the amount which Hans Raj Vadhera agreed to take during his lifetime and this was the amount credited to his account in the books of the firm while he was alive. A contract which was binding on both the partners Hans Raj Vadhera, and the firm had been entered into by him by fixing the value of the land at Rs. 2,01,000. The agreement between the parties was not dependent on the action that the ITO may take afterwards for valuing this property nor on the market value of the assets on the date of transfer. There had been no dispute as to the valuation of this property while Hans Raj Vadhera was alive. Hans Raj Vadhera never claimed that he should be paid more than what he had initially demanded as the price of the land. It was well established that in a business it is the actual cost which had been paid for which is to be taken into account and not the market value. If the claim of the assessee that the market value should be substituted in place of the actual cost is carried to its logical conclusion, then there would be no profit or no loss in any business. The profit accrues because the businessman buys the thing cheap and sells it at a higher price. In this case, the firm had bought the land at a cost of Rs. 2,01,000 and the market value of the property was entirely immaterial. Therefore, the claim of the assessee that the market value of the land should be substituted could not be accepted. The Commissioner (Appeals) upheld the order of the ITO that the cost of the land should be taken at Rs. 2,01,000 only.
21 to 25. [These paras are not reproduced here as they involve minor issues.] 26. The Commissioner (Appeals) noticed that one of the buyers Jatinder Nath of Nath Bros, during the examination by the ITO handed the ITO a schedule of the rates at which the flats were booked by the assessee-firm as under: 3rd Floor Offices 150.00 4th 147.50 5th " 145.00 6th " 142.50 7th " 140.00 8th " 137.50 9th " 135.0010th " 132.5011th " 130.0012th " 127.5013th ,, " 125.0014th " 122.5015th " 120.0016th " 117.5017th " 115.0018th " 112.50 The ITO had found that these were original booking rates in respect of flats which were sold by the assessee and even in subsequent years, the rates charged were either the same or even less than the original booking rates. The ITO had examined a number of purchasers who had booked the flats and had found that the rates which were accounted for in the books of the assessee were less than what had been agreed to be paid by the persons who had booked the flats. It is also true that some of the persons who had taken the flats from the assessee had denied having paid any on-money but that was obviously so because they would be called upon to explain the source from which the on-money was paid.
The Commissioner (Appeals) also noted that the assessee's case was that the schedule on the basis of which the ITO had proceeded to make the assessment was not published at the instance of the assessee but was published by the individual brokers while the assessee had no connection with the same. It was also contended that if someone surrendered the flat it was again resold by the assessee at the original price without charging anything over and above for which the flat was sold.27. The Commissioner (Appeals) found himself unable to accept either of these contentions. He observed that one has to take cognizance of the trade practices prevailing in Delhi in the commercial building market.
It was well known that originally the booking was opened at a fixed rate. This rate was intimated to the various brokers and the estate agents. These agents printed and published the schedule of rates which were given to the prospective buyers. At the time of original booking, the rates printed in the schedule are charged. The brokers take their commission over and above the price which is paid by the buyers. As time passes and there was some progress in the construction of the building the individual flats start commanding premium. The first rise in the premium takes place at the time when the foundations are laid and with the progress of construction of the building the premium goes on increasing. This being the market trend and the market practice, the claim of any builder that he had continued to sell the flats at the original rates even after the building had progressed is certainly not correct. He further observed that the last few years had been the sellers market in the matter of commercial flats and without any exception the prices of the individual flats had been going up after the original booking.
28. The Commissioner (Appeals) further observed that in the face of this market situation, if the ITO had been able to find several cases which established that on-money had been charged by the assessee, he was perfectly entitled to assume that the other sales were also not shown in the books of account at the correct rates but there has been suppression in the sale price of other flats also. The Commissioner (Appeals) rejected the contention that the ITO had proceeded to make the addition on the basis of conjecture and surmises. The Commissioner (Appeals), therefore, upheld the addition on account of on-money charged by the assessee-firm. These findings are to be found in the order of the Commissioner (Appeals) for the assessment year 1975-76.
29 to 64. [These paras are not reproduced here as they involve minor issues.] 65. The learned counsel for the assessee argued this particular ground very vehemently and the arguments went on for a number of days. Number of charts, statements, explanations, etc., were filed. It was pointed out that every purchaser had been examined by the ITO. The charts were filed from pages 1317 onwards giving details of sales of all the flats in the building from 4th to 14th floors. It was pointed out that on 8-9-1976 there was a search in the premises of the assessee in which nothing incriminating was found. The reason why the flats did not fetch the best price was given as the dispute by the daughters in respect of the property and the entry by the Land & Development Officer by cancelling the lease. The learned counsel for the assessee then took us through the entire evidence with specific reference to each of the flats in respect of which the ITO had raised a doubt that the assessee had understated the price. The learned counsel first discussed the evidence of D.R. Vadhera, partner of the assessee-firm. Shri Vadhera has stated on page 1002 that after his father's death he was negotiating the sales of all the flats and nobody else was looking after this work. He had been shown a pamphlet by Jatinder Nath and on seeing it the assessee stated that the firm did not issue any schedule, brochure or pamphlet and this pamphlet on page 1015 of the paper book was not issued by them. It also gives the wrong information regarding the flats on floor Nos. 3, 15, 16, 17 and 18 being for sale when they were not to be sold. In reply to another Question No. 5 by the ITO he stated that the rates were quoted obviously as per the pamphlet and the mode of payment was given to the prospective buyers as per the pamphlet. In reply to Question No. 6 he stated that he would have to check his records whether the rates given in that pamphlet from 4th to 14th floors corresponded to the rates actually quoted by the assessee.
He then took us through the entire evidence regarding flat Nos. 13C, 7H, 4F, 9C, 13B and 4D. In respect of flat No. 9G it was noted that the original booking was @ Rs. 115 per sq. ft. though on 19-10-1971 it was re-transferred after surrender @ Rs. 110 per sq. ft. The learned counsel stressed the point that all the transfers from the original allottees were with the consent of the original allottees and not with the consent of the assessee. Stress was laid on this fact in view of the undisputed position that at the time of the re-transfers the period of two to three years had generally elapsed from the date of original booking and the price of the land had invariably gone up.
66. The learned counsel further urged that there was no admissible evidence to show that the assessee charged any on-money, i.e., the money over and above what is recorded in the receipt and in the assessee's books. He contended that while the Courts can take judicial notice of notorious fact or trade practice the tribunal cannot. In any event there was no evidence of any trade practice of charging on-money or to understate the consideration in the books. It was pointed out that the department had made no additions in the hands of purchasers for the on-money invested by them in the purchase of flats. The cost of construction of the building had been accepted by the ITO. The conclusion regarding charging of on-money was, therefore, based on conjectures and surmises only and there was no legal evidence of it.
The ITO had not cited any comparable case of prevailing market rates of the flats in multi-storeyed building in that area justifying the conclusion that the assessee had charged on-money. There was a mere presumption on which the ITO had proceeded and there was no evidence.
In any event the assessee had succeeded in rebutting the presumption raised by the ITO. Reliance was placed on behalf of the assessee on the ruling of the Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT'  37 ITR 288 for the proposition that the assessee's explanation cannot be rejected on mere conjectures and no addition can be sustained on suspicion and surmises. In that case it appears to have been assumed that the assessee had indulged in smuggling. The Supreme Court held that the notoriety for smuggling foodgrains was merely a background of suspicion and the assessee could not be held to have indulged in smuggling without any evidence. Reliance was also placed on the decision of the Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT  26 ITR 775, for the proposition that the ITO is not fettered by technical rules of evidence and pleadings and he is entitled to act on material which may not be accepted as evidence in a court of law, but the ITO is not entitled to make a pure guess and to make an assessment without reference to any evidence or any material at all. There must be something more than mere suspicion to support the assessment.
67. As against this the learned departmental representative also took us through the entire evidence. He pointed out that from August 1970 to April 1971, the assessee had booked for sale 70 out of 88 flats in the building from 4th to 14th floors. From May 1971 to December 1971, 9 flats were booked. 5 were booked in 1972, one in August 1973 and 3 in 1974. This was clear from the charts in the assessee's paper took from pages 1317 to 1336. The departmental paper book was filed which showed from pages 1-2 a rising trend of price of flats it was urged that ready market for multi-storeyed flats was available. The learned departmental representative specifically referred to the fact that there was no uniformity of the price charged by the assessee and there was a wide fluctuation between the price: charged on one date and another. He specifically referred to the statement of D.R. Vadhera that he was interested to get the best price of the flats and for that he entered into negotiations with the buyers. Specific instances were pointed out to show that there was understatement of consideration of the flats originally booked. Reliance was placed on behalf of the department on the decision of the Calcutta High Court in the case of Mahamudabad Properties (supra) for the proposition that the Tribunal was fully justified in importing its local knowledge with regard to the question of rise in prices of land between 1954 and 1962. The Court can also take judicial notice of the fact that there was a steady rise in prices during those years. The learned departmental representative also relied on the observation of the Supreme Court in the case of CIT v. Durga Prasad More  82 ITR. 540, for the proposition that the taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look to the surrounding circumstances to find out the reality in these documents.
Further reliance was placed on CWT v. Rohtas Industries Ltd,  67 ITR 283, wherein the Patna High Court held that in the absence of any direct evidence a judicial or quasi-judicial, the Tribunal can base its conclusion on the basis of what are known as notorious facts bearing in mind the principles of Section 114 of the Evidence Act. The learned departmental representative strongly urged that we should take judicial notice of notorious facts of the on-money in property transactions and also of the fact that prices have been rising continuously from 1971 onwards.
68. The learned departmental representative then took us through the specific instances of re-transfer of flats which are done mostly at the same price on which they were originally booked. In many of the cases no transfer fee was also charged. This further showed that the flats were surrendered to the assessee That was also the evidence of the witnesses who had been examined by the ITO in the presence of the assessee. How could the assessee charge the old rates for re-transfer when the price had considerably gone up. As regards the assessee's contention that the transfer was at the instance of the original purchasers, it was urged that the direct evidence of the original purchasers had blasted the story and there was no truth in it.
Invariably the original purchasers and the re-transferee had stated on oath that they do not know each other ; the purchaser having surrendered to the assessee and the repurchaser having repurchased from the assessee. It was also urged that it was impossible to believe the assessee that it issued no brochure at all regarding the price for which they were offering the flats for sale. Invariably, a promotor or builder of the multi-storey building would advertise the same and that could only be by issue of brochure. In any event, the assessee had not disputed the correctness of the pamphlet at page 1015 of the paper book except that and 3 and 15 to 18 floors were not for sale. Rather it is quite possible that at the time when Jatinder Nath booked flat No. 4G on 25-8-1970, the assessee had not decided that it would not sell floors 15 to 18 because the booking was commenced soon after the firm came into brochure tallied with the rates at which many flats were booked by the assessee himself. In fact, 5 purchasers examined by the ITO have given the rates of booking as per the pamphlet though they did not have the pamphlet with them. Invariably, the purchasers when they surrendered flats to the assessee they were required to sign blank transfer form in which the assessee himself filled the name of the new purchaser, rate, etc. If the transfer was at the instance of the original purchaser he could have filled in those blanks. It was admitted by Shri Vadhera that the rates at which the flats were booked were not mentioned in all the receipts and he had not produced all the receipts that were surrendered to him by the original buyers. In fact he had stated that he had kept some receipts and destroyed the others which was difficult to believe.
69. It was contended by the learned departmental representative that since the assessee claimed to have been able to sell all the flats without any publicity or issuing a pamphlet or brochure, it showed that there was no difficulty in selling them because of the dispute with the daughters and the President of India exercising the right of re-entry.
It was further argued that failure to take any action against the buyers for unexplained investment in the flats was immaterial.
70. In reply the learned counsel for the assessee again reiterated his original arguments and took us through the evidence. He made a complaint that the ITO did not supply copies of all the statements and offered to give copies of only those statements which he was going to use against the assessee. As against this the learned departmental representative pointed out that the assessee was asked if he wanted the copies of all statements but he replied in negative. The learned counsel for the assessee stressed the point that this was the first multi-storey building in Delhi but the publicity was only oral by the word of mouth, through the brokers. It was urged that the ITO never informed the assessee that he intended to treat 15 per cent of the entire sale proceeds as on-money and did not specifically question it.
The assessee, however, appears to have stated in his evidence in reply to Question No. 21 that he did not charge any on-money and even when it was offered he declined to receive it. Thus, it was clear that the matter was under the active consideration of the ITO to the knowledge of the assessee. When it was pointed out to the learned counsel for the assessee that in some cases the first instalment worked out to 10 per cent at the rate of Rs. 147.50 per sq. ft., though the price shown by the assessee was less, it was explained that the assessee probably told the buyers that the initial charges were at the rate of Rs. 147.50 or so and, therefore, the first instalment was deposited on that rate but there was no uniformity of rates and no set pattern in this regard. It was conceded that there was no distress sales by the assessee but he made the most expedient sales at the best price available. He urged that there was no presumption that the assessee charged on-money. The onus was on the revenue to prove that on-money was charged even where there was a sale of flats on the same day on widely different rates. It was urged that the assessee had perhaps duped the purchasers who paid the higher price on the same day when the other was able to purchase it on a lower price. Even the fact that there was a trend of rising prices was disputed. It was further urged that even if there was a practice of charging on-money, the question was did the assessee indulge in it The Tribunal cannot for the first time hold that there was a trade practice of charging on-money. The limitation within which the Courts can take notice of notorious facts were stated on behalf of the assessee. The learned counsel made a valiant effort to dissuade us from coming to a finding that the assessee charged on-money and argued with eloquence as if he was arguing as a proxy for all the multi-storey builders in Delhi and elsewhere, that on the material on record no finding of on-money was possible and if we were to give such a finding it would be used as a precedent in other cases. He was, therefore, at pains to point out each and ' every piece of evidence to negative the departmental contention of on-money having been charged.
71. We have considered the rival contentions. Two aspects of all the sale transactions merit separate treatment. The first is regarding the original booking. The department contends that the rate settled was much more than that shown on the receipts or agreements or in assessee's account books. The assessee denies this. The second pertains to transfers from the original allottees. Those transfers bare almost invariably been registered at the same rates at which the original booking was done though the transfer/surrender was after a lapse of 1, 2 or 3 years. The allottees contend that they took their money back from the assessee, signed blank transfer deeds, etc., and gave them along with the original receipts to the assessee. They have almost invariably contended that they do not know the subsequent transferee and never requested for transfer of the flat to the transferee. The assessee's stock contention is that the original allottees brought the transferee alone and requested for the transfer and that is why the old price was charged since the transfer was at the instance of the allottees.
72. We have to find out on the facts and in the circumstances of the case where the truth lies. The assessee swears by his account books, entry of the rates in some of the receipts and in the agreements. He also strongly relies on the typed applications duly signed by the original allottees requesting for transfer of the flat to some other person. The allottees say that they had signed the blank forms and given them to the assessee and the blanks re. (sic) name of transferee, amount, number of flats, etc., were filled in by the assessee when he found another purchaser. The assessee also strongly relies on the statements of almost every allottee that no 'on-money' over and above what is shown in the receipts was ever paid.
73. Before we start discussing the facts and circumstances, we may have a look at the charts on pages 1317 to 1336 of the paper book which show the rates at which each flat was originally booked and the rates thereof. We may start with flats on the 4th floor.
74. The first flat sold by the assessee appears to be 4-G, @ Rs. 120 per sq.ft. booked on 25-8-1970 though the first payment was made only on 31-8-1970. On 28-8-1970 flat No. 4-F was booked @ Rs. 111 per sq.
ft. on 15-9-1970, 4-B was booked @ Rs. 120, on 24-11-1971 4-E was booked @ Rs. 105 per sq. ft. but before that 4-A was booked @ Rs. 147.50per sq. ft. by Pilkhani Distillery & Chemical Works on 19-10-1970. 4-C was booked on 13-3-1971 @ Rs 120, 4-D on 17-3-1971 @ Rs. 117 and 4-H on 8-5-1973 @ Rs. 110. What does this indicate Only that flats were being booked at haphazard rates. If 4-A could be sold @ Rs. 147.50 on 19-10-1970 there is no reason why the assessee, who claims to be a prudent businessman interested in selling the flats at the best possible price, would sell 4-E @ Rs. 120 over a year and a month later, 4-C @ Rs. 120, 5 months later and 4-G @ Rs. 117 also 5 months later. What is more surprising is that 4-G was sold on 8-5-1973, i.e., over 2 1/2 years later @ Rs. 110.
75. We may now have a look at the rates for booking shown in the pamphlet on page 1015 of the paper book, filed by Jatinder Nath who had booked flat No. 4-G. The assessee denies that he issued this pamphlet but concedes that the brokers had issued such pamphlets and he had seen such pamphlets but took no steps to contradict them (see assessee's partner D.R. Vadhera's statement on page 1005 of paper book). Sh.
Vadhera says that they had fixed rates for booking flats but did not charge uniform rates. He further stated that they got the best price for each deal. In the pamphlet he says, some rates were the same as fixed by the assessee but some were more or less. Jatinder Nath says he dealt with assessee directly and not with any broker and this schedule was given to him when he booked the flat with the assessee. D.R.Vadhera states on page 1002 that the mode of payment for the flats booked with them was as per this pamphlet but floors Nos. 3, 15 to 18 were not offered for sale. Brokers cannot, however, publish pamphlets on their own and would publish them only at the instance of and with the consent of the builder.
76. In this pamphlet (P.B. 1015) the rate for booking 4th floor flats is Rs. 147.50 per sq. ft. This finds support from the booking of 4-A @ Rs. 147.50 per sq. ft. as per assessee's own records. Jatinder Nath paid Rs. 16,077 when he booked 1080 sq. ft. flat @ Rs. 147.50 per sq.
ft. He says that the assessee worked out the sum of Rs. 16,077 as 10 per cent of the booking price and he paid it. The assessee contends that this amount is not 10 per cent @ Rs. 147.50 per sq. ft. He further says that he did not ask for Rs. 16,077 from Jatinder Nath and he paid this amount voluntarily. Indeed no purchaser would pay this odd sum, if he is not specifically asked for it. 10 per cent of the price of 1080 sq. ft. @ Rs. 147.50 seems to work out to Rs. 15,930 but the assessee appears to have made a calculating error and demanded Rs. 16,077 which Jatinder Nath paid. Jatinder Nath has no enmity with the assessee and has no axe to grind in this matter. His statement is supported by the pamphlet and the actual price charged for booking 4-A. We, therefore, see no reason to disbelieve him. We hold that 4-G was booked @ Rs. 147.50 per sq. ft.
77. The question arises as to whether any 'on-money' was paid by Jatinder Nath over and above what is shown in the receipt. The statement of Jatinder Nath is that he got back from the assessee what he had paid and he paid or received no on-money. Indeed it would be idle to expect a person to admit that he had cappled in black money transactions. No person is expected to implicate himself. Therefore, it cannot be expected of any person booking the flat who has paid 'on-money' to admit that he has paid part of the consideration in black money. At the same time it is a notorious fact which cannot be ignored, that there is a parallel black money economy in this country which manifests itself mostly in immovable property transaction.
78. No direct evidence can, therefore, be expected on a matter like this. However, circumstantial evidence is quite eloquent and while witnesses may be, circumstances do not. When a person books a flat @ Rs. 147.50 per sq. ft. but the receipt shows Rs. 120 only, it only means that in later instalments, Rs. 27.50 per sq. ft. would be charged in black money while Rs. 120 per sq. ft. would only be accounted for in books. It has to be noted that the first instalment from Jatinder Nath was charged at about Rs. 147.50 per sq. ft. and the next two were also at the same rate being Rs. 16,000 each. At Rs. 120 per sq. ft. the total price would be Rs. 1,29,600 and 10 per cent would work out to Rs. 12,960 but assessee charged Rs. 16,077, Rs. 16,000 and Rs. 16,000 respectively for the three instalments. It may be observed that the purchaser would not refuse to pay partly in black because with black money proliferating, it is easier for most people to pay in black than in white.
79. In view of the positive evidence of Jatinder Nath the veracity of which could not be successfully challenged by assessee despite lengthy cross examination supported by the instalments paid and the pamphlet and the rate at which it was booked, i.e., Rs. 147.50, it is obvious that the rates shown for booking 4-C @ Rs. 120, 4-D @ Rs. 117 and 4-E @ Rs. 105 are definitely understated. It is all the more understated in the case of 4-H which was booked on 8-5-1973, i.e., nearly one-half year later and the price shown is Rs. 110 per sq. ft. We may point out that flat No. 6-D was transferred on 30-1-1974 @ Rs. 160 per sq. ft.
which shows that prices had considerably risen by then. It is also a fact of common knowledge that prices were steadily rising in 1971 and 1972 due to normal inflationary pressures and they rose steeply in 1973 and 1974 due to run away inflation. Would any prudent seller who sold 4 on 19-10-1970 @ Rs. 147.50 sell 4-B @ Rs. 110 sq. ft. on 8-5-1973 The answer can only be in the negative. The rate for 4-H is heavily understated. The position is the same regarding 4-B and 4-F which are shown as booked @ Rs. 120 and @ Rs. 111 per sq. ft. after the flat 4-G was booked first of all on 25-8-1970 @ Rs. 147.50. The prices of 4-B and 4-F are also understated the rate being Rs. 147.50 per sq.ft. we held that all the flats on the 4th floor were booked (a), Rs. 147.50 per sq. ft. 5TH FLOOR 80. In the pamphlet at page 1015 of the paper book, the rate is given as Rs. 145. Paper book pages 1319 and 1320 charts show the rates as follows: 5H 26-7-71 120 Booking rate as 6A 24-12-74 225 per pamphlet 6B 24-12-74 225 Rs. 142.50 per 6C 7-8-71 122 sq. ft.
6D 10-1-72 140 81. Flat No. 6-E was booked by Jaswant Singh in the name of minor Shashi Preet Kaur. We paid Rs. 52,500 initially and Rs. 13,110 later as the next instalments. The size of the flat is 920 sq. ft. Gurnamsingh s/o Jaswant Singh who was [examined did not know the rate of booking but in cross examination on page 1193 of the paper book assessee asked a question that for 920 sq. ft. @ Rs. 147.50 per sq. ft. the price comes to Rs. 1,26,120. The reply was that since all the papers were returned to assessee he did not remember the rate. However, we have worked out the price of 920 sq. ft. @ Rs. 142.50 per sq. ft. and it comes to Rs. 1,31,100. 40 per cent comes to Rs. 52,440 and 10 per cent to Rs. 13,110. The assessee charged Rs. 52,500 initially and Rs. 13,110 as the next instalment. It is obvious that the price was worked out @ Rs. 142.50 the next instalment was exactly 10 per cent the first was in excess by Rs. 60. To make a round figure.
82. Looked at in the light of the evidence discussed regarding the 4th floor, the pamphlet showing the rates of booking, the inherent evidence in the case of booking of flat No. 6-E and the instalments paid, it is clear that the rate charged for 6th floor at the time of original booking in 1980-81 was Rs. 142.50 and not as shown in the assessee's books. The prices have been understated in the assessee's books, except as regards 6-A & 6B which were booked on 24-12-1974 @ Rs. 225 and there is no evidence of understatement in this regard. The conclusion as regards the 5th floor is also that the rate at which flats were originally booked was Rs. 145 and not as shown by the assessee. The prices in the assessee's account books have been understated. 5-F was sold on 1-5-1975 @ Rs. 275 and there is nothing to show that there was any understatement in it.
83. Rate as per pamphlet on page 1015 of F-5 is Rs. 140 and 8th floor Rs. 137.50. As per paper book pages 1323-24, Flat 7-A was booked on 19-10-1970 @ Rs. 113 per sq. ft. and Rs. 17,000 was received as first instalment at the time of booking. Next instalments were Rs. 17,000 on 5-11-1971 and Rs. 17,055 on 31-7-1972, Rs. 17,000 on 7 and 18-9-1972.
The area of the flat is 1,265 sq. ft. @ Rs. 113 per sq. ft. the total price comes to Rs. 1,42,945 and the instalments showed be Rs. 14,295 each but they were Rs. 17,000 each. At Rs. 135 per sq. ft. The price of 1,265 sq. ft. works out to Rs. 1,70,775 and the instalments would be Rs. 17,077 each. The rate Rs. 113 is, therefore, clearly bogus and unconnected with the actual price charged and settled. Flat 7-B was booked @ Rs. 140 per sq. ft. and we see no reason to hold that this price is also understated.
84. As regards 7-C the area is 1,400 sq. ft. and the first instalment is Rs. 19,600. This works out to Rs. 140 per sq. ft. The next instalment is Rs. 20,000 which is also almost equal to the first the difference being only Rs. 400. It is, thus, clear that the rate at which 7-C was sold was Rs. 140 though the rate shown is Rs. 105 per sq.
85. 7-G area 1,080 sq. ft. was booked on 3-2-1971 @ Rs. 110 per sq. ft.
by Aryan Bros. Mahendra Kumar who had booked this flat has filed an affidavit and has also given evidence that the flat was booked @ Rs. 137.50 per sq. ft. The price of 1080 X 137.50 comes to Rs. 1,48,500. 10 per cent comes to Rs. 14,850 and 20 per cent Rs. 29,700. The assessee paid Rs. 29,000 on 1-1-1971 and 21-1-1971 and Rs. 51,000 on 16-12-1971.
This comes closest to the rate Rs. 137.50 and has no connection with the rate shown at Rs. 110.
86. 7-H was booked by Om Prakash Gupta and Smt. Chander Agarwal on 16-11-1970 @ Rs. 103 per sq. ft. as per assessee's records. Shri Om Prakash Gupta has stated that as per his memory he booked it @ Rs. 137.50 per sq. ft. that was the price quoted and he expected a range of Rs. 5 to 7 per sq. ft. He has specifically stated that the price settled was not Rs. 103 per sq. ft. as shown. He bad surrendered the flat to the assessee and had returned the receipt, etc., to the assessee. The photostat of the receipt at page 1054 of the paper book mentions the rate as Rs. 103. In the pamphlet the rate quoted for 7th floor is Rs. 140 and for 8th floor it is Rs. 137.50. Since the multi-storey buildings had not become the craze in Delhi till then, it is likely that the assessee quoted for 7th floor Rs. 137.50 payments were made by some of the purchasers in lump sum round figures which have no relation to either of these rates. However, Rs. 103 per sq. ft.
appears to be totally irrelevant in the context of the evidence and the rates at which most of the flats were booked. We, therefore, held relying on the statement of Om Prakash that 7-H was booked @ Rs. 137.50 per sq.ft. The price shown in assessee's books is understated. We hold that 7-D, 7-E, 7-F were booked @ Rs. 140 per sq. ft. and the price shown is understated.
87. Flat 8A was booked on 27-12-1975 @ Rs. 240 per sq. ft. 8-S was booked on 11-10-1971 @ Rs. 98 per sq. ft., 8-C on 31-7-1971 @ Rs. 100, 8-D on 31-8-1971 @ Rs. 110, 8-E on 15-4-1971 @ Rs. 95, 8-F on 19-7-1972 @ Rs. 115, 8-G on 24-5-1971 @ Rs. 105 and 8-H on 12-7-1971 @ Rs. 115 per sq. ft. The chart on page 1325 of the paper book shows that in respect of 8-D the purchaser paid Rs. 15,000 on 2-9-1971 at the time of booking. Rs. 10,000 on 28-9-1971 plus Rs. 5,000 on 22-1 l-1971 = Fs.
15,000. Rs. 5,000 on 13-1-1972 plus Rs. 3,000 and Rs. 2,000 on 24-1-1972 plus Rs. 5,000 on 14-3-1972. Rs. 15,000 = Rs. 5,000 on 6-3-1973 plus Rs. 10,000 on 7-3-1973 = Rs. 15,000, Rs. 10,000 on 7-4-1973 and Rs. 5,000 on 30-4-1973 = Rs. 15,000. The instalments of 10 per cent each were thus obviously worked out at Rs. 15,000 each. For 1100 sq. ft. @ Rs. 136 per sq. ft. approx. The instalment works out to about Rs. 15,000 each. The rate as per pamphlet was also Rs. 137.50 in 1970. These flats were booked in 1971 and 1972 and the price shown at Rs. 98 to Rs. 115 per sq. ft. appears to be totally fictitious and is understated. The prices for 8th floor appear clearly understated for another reason also. Comparing the prices at which 9th floor flats were booked vide paper book pages 1327 and 1328, i.e., Rs. 135 on 23-1-1971 for 9-B and Rs. 135 on 12-2-1971 for 9-F, it is impossible that assessee, a prudent businessman, naturally interested in getting the best price would book 8th floor in later part of 1971 and 1972 at less than Rs. 135 per sq. ft. We held that the flats 8-B, 8-C, 8-D, 8-E, 8-G and 8-H were all sold @ Rs. 136 per sq. ft. and the prices shown by assessee are understated. 8A was sold in 1975 @ Rs. 275 per sq. ft. and there is no evidence to show that even this price is understated.
88. For 9th floor the rate in the pamphlet was Rs. 135 per sq. ft. and that is the rate at which the assessee booked flat Nos. 9-B and 9-F on 23-1-1971 and 12-2-1971 respectively. Flats 9-A, 9-D, 9-E and 9-G were booked earlier to the booking of flats 9-D and 9-F but 9-C was booked on 23-4-1971 @ Rs. 105 per sq. ft. and 9-H on 17-3-1971 @ Rs. 115 per sq. ft. The prices of 9-C and 9-H are clearly understated since the rate quoted was Rs. 135 and assessee was also able to sell two flats @ Rs. 135, i.e., January and February 1971. He would not sell the flats in March and April for Rs. 115 and Rs. 105 per sq. ft. He has no satisfactory explanation for such divergence of rates.
89. Sanchar Bliatia who had booked 9-C has, however, stated that he booked it in April 1971 @ Rs. 105 per sq. ft. He paid a total of Rs. 17,000 and surrendered the flat to assessee and received back the amount paid. However, Satish Chandra who booked 9-G has stated on oath that he booked it @ Rs. 135 per sq. ft. and when he booked it as second purchaser on 19-10-1971 he paid Rs. 43,740 on 20-10-1971. This works out exactly at 30 per cent of the price for1080 x 135 x 30/100 = Rs. 43,740. There is thus inherent corroboration for his statement. He also filed an affidavit to this effect (vide P.B. 1106-7). The photostat copy of receipt on page 1108 of the paper book does not mention the rate of booking though on some other receipts the rate is mentioned.
The rate shown in the agreement is, however, Rs. 110. However, on 10-3-1976 this witness Satish Chandra sent a letter (P.B. 1124) to the ITO changing his earlier statement that the flat was booked @ Rs. 135 and saying that he had verified the document and the rate was Rs. 110.
The records always showed Rs. 110 and there was nothing to verify. He was categorical earlier that the rate was Rs. 135. That is the rate which assessee charged for 2 other flats on 9th floor and the instalment paid at the time of booking works out @ Rs. 135 per sq. ft.
His letter, dated 10-3-1978 does not, therefore, tell the truth. He has clearly prevaricated in this letter. He rejects his later statement.
90. There is thus clear proof of understatement of price in respect of flat Nos. 9-G and 9-H. Regarding flats booked in 1970 also the price could not be as shown though it may be slightly lower than Rs. 135 per sq. ft. Thus, there is understatement of consideration even in respect of flat Nos. 9-A, 9-D, 9-E and 9-G. We held that flats 9-A, 9-D, 9-E and 9-G were sold @ Rs. 130 per sq. ft.
91. The rate quoted as per pamphlet on page 1015 of the paper book was Rs. 132.50, Rs. 130 and Rs. 127.50 per sq. ft. respectively. Vide chart on page 1329 they were sold to two limited companies of Dalmia Group on 3-10-1970 @ Rs. 123.50 per sq. ft. these flats.
92. The quoted price as per pamphlet was Rs. 125 per sq.ft. flat Nos.
13-A, 13-F, 13-G and 13-E were booked @ Rs. 125 per sq. ft. on 8-12-1970, 6-10-1970, 12-11-1970 and 12-1-1971 respectively. Flat No.13-B is shown to have been booked @ Rs. 115 on 28-12-1970, 13-C @ Rs. 100 on 16-4-1971, 13-D @ Rs. 115 on 7-11-1970 and 13-H @ Rs. 94 on 2-2-1971. Mg. Com. J.R. Kapur who had booked flat No. 13-C has stated that he had booked it @ Rs. 125 per sq. ft. (P.B.P. 1028-29). He says it was the prevailing competitive rate. Looked at in the light of the rate quoted in the pamphlet and the rate at which 4 flats were sold, i.e., Rs. 125 per sq. ft. the statement of Shri Kapur appears to be true that he had booked it: @ Rs. 125 though the rate shown by the assessee is Rs. 100 per sq. ft. When it was possible to sell 4 flats @ Rs. 125 and that was the quoted price there is no reason why the assessee should sell the remaining flats from Rs. 96 to Rs. 115. The finding, therefore, is that all these flats were sold @ Rs. 125 per sq.
ft. but the consideration is understated by the assessee.
93. Flat No. 14A is shown to have been booked on 6-10-1970 @ Rs. 100 14C @ Rs. 122.50 on 15-4-1970, 14D on 28-8-1970 @ Rs. 111, 14E on 10-12-1970 @ Rs. 101. 14F @ Rs. 122.50 on 18-1-1971. 14G on 22-1-1971 @ Rs. 95 and 14F on 20-11-1970 @ Rs. 100. The rate quoted in the pamphlet was Rs. 122.50, 14C & F were also booked at this rate on 15-4-1971 and 18-1-1971 respectively. 14A, D, E and H were booked in 1970 @ Rs. 100, Rs. 111, Rs. 101 & 100 respectively. It is possible that these higher floors did not command much price in 1970 and we are unable to hold that there was any understatement of consideration in respect of flats sold in 1970. However, 14G was sold on 22-1-1971 and the price shown is Rs. 95, though on 18-1-1971 14F had been booked @ Rs. 122.50. It is thus clear that the assessee would not sell 14-G @ Rs. 95 when 4 days earlier a flat on the same floor had been booked @ Rs. 122.50 which was also the quoted rate. There was, therefore, a clear understatement of consideration in respect of flat No. 14-G. We hold that all the flats on 14th floor were originally booked @ Rs. 122.50 per sq. ft. except 14A, D, E and FI which were booked in 1970, at lower rates.
94. There are numerous transfer of persons booking the flats subsequently surrendering them to the assessee and the assessee sold them to others. The amount paid by the first purchaser was almost invariably returned by the assessee by cheque which is clear proof of the fact that the surrender was to the assessee. If that were not so and the next purchaser bad negotiated the purchase with the original purchaser then the price including on-money if any, would have passed between them without the intervention of the assessee. The assessee could only have charged transfer fees in that event. The persons who surrendered them have stated on oath that they did not know the subsequent transferees and signed blank transfer forms and gave them to assessee who paid them the refund and then filled in the blanks and transferred the flats to others.
95. Besides the statements of these persons who surrendered the flats, there is inherent evidence in the transactions themselves like the prevailing market rates of which incontrovertible evidence is available in the assessee's account books itself to show that the prices at which the assessee transferred the flats to repurchasers were much below the market prices. The assessee does not claim that it is a charitable organisation and did not want to charge the maximum price available. On the other hand, his case is that he is a prudent businessman who negotiated the highest price available. In such circumstances, if instances come to light that assessee had transferred the flats to repurchasers at less than the prevailing market price, the invitable inference would be that the assessee received part of the consideration in 'unaccounted money' and showed lower sum in the books to evade taxation.
96. Flat No. 4G was booked by Math Bros, (a), Rs. 147.50 per sq. ft. in August 1970 as held by us already though the consideration shown was Rs. 120. It was surrendered in April 1973 to the assessee. The original purchaser claims he did not know the subsequent purchaser. There is no reason to disbelieve him, the resale was, therefore, by the assessee.
He would not charge Rs. 120 or even Rs. 147.50 because the prices had considerably gone up in nearly 3 years and the assessee would naturally charge the best possible market price. The trend of prices shows (vide P.S. p. 1319) that 5B booked @ Rs. 110 on 6-10-1970 was sold on 30-11-1974 @ Rs. 205 and was transferred on 6-8-1973 @ Rs. 120. Price of 6D went up by Rs. 20 per sq. ft. by 30-1-1974 and of 6C by Rs. 20 by 11-2-1974. It is not as if prices went up suddenly with the advent of year 1974. They were going up in 1973 due to heavy inflationary pressures. The price of 4-G was thus more than what is shown on re-transfer and the assessee had understated the consideration received on transfer in its books.
97. 13C was booked by J.R. Kapur @ Rs. 125 per sq. ft. on 16-4-1971 though the consideration shown was Rs. 100. It was surrendered in February 1973 to the assessee. The assessee transferred it to Shamlal @ Rs. 100. There is letter by the intermediary to the next purchaser Shamlal for surrendering the flat by Kapur without any loss. Since Shamlal had intervened being a friend of assessee's partner, he got this flat on surrender in his name. The price might be the same as charged to Kapur, i.e., Rs. 125 though not Rs. 100 as shown.
98. 7H was booked on 16-11-1970 and surrendered on 21-8-1972 by Om Prakash Gupta to the assessee. Before assessee gave the refund to Om Prakash, he had sold it to K.K. Duggal on 2-8-1972 @ Rs. 103. The market price was much more than Rs. 103 and the price on resale is clearly understated.
99. Flat No. 4-F was booked by Mohinder Paul on 10-2-1971 and surrendered on 6-5-1971 to assessee. The assessee transferred it to M.K. Bhatia at the old rate of Rs. 111 though prices had risen by then.
In fact an indication of market prices is available from original booking of flat No. 9-F (which being on a higher floor was priced lower by assessee) on 12-2-1971 @ Rs. 135. Numerous other instances of booking of flat No 9F (which being on a higher floor was priced lower by assessee) on 12-2-1971 @ Rs. 135. Numerous other instances of booking at higher prices in 1971 have already been given. The assessee's claim that transfer was at the instance of the person who had originally booked it having failed, the only conclusion possible is that the assessee to whom the flat was surrendered transferred it at a higher price and showed lesser price in the books of account.
100. 9-C, 9G, 4-D, 13-F and 6-E were all surrendered to the assessee and not transferred at the instance of the original purchasers. Their prices shown on transfer by the assessee are clearly understated as they are much below the current market prices.
101. 7-G, 6-G and 13-E were indeed transferred at the instance of the original purchasers and, therefore, there is no evidence of charging 'on-money' by the assessee.
102. The ITO has estimated on money on a general basis on the entire booking @ 15 per cent. He has also added separately the specific instances of understatement of consideration. In our opinion, the ITO was wrong in doing so, since in case of original booking it has been possible on the evidence on record to find out at what rates the flats were booked. In that regard we have already given findings in paras 74 to 93 above, as to at what rate the assessee had booked the flats originally and to what extent the price has been understated in the assessee's books. Therefore, in respect of original booking the amount to be added shall be worked out with reference to our specific findings as to understatement. That addition shall be in substitution of the addition @ 15 per cent made by the ITO and sustained by the Commissioner (Appeals).
103 to 109. [These paras are not reproduced here as they involve minor issues.] 110. The assessee-firm came into existence under the deed of partnership, dated 8-8-1970. Clause 3 of the partnership deed reads as under: The land situated on 15-Barakhamba Road, New Delhi shall be the property of the firm and as taken in the wealth-tax return of Shri Hans Raj Vadhera and shall be credited to his capital account in the books of the firm. Thereafter the respective partners may contribute such capital as they mutually agreed upon.
The partners in the firm were: Hans Raj Vadhera 40 per cent, Mrs.
Pushpa Vadhera 30 per cent, Master Misha Vadhera 15 per cent and Master Niraj Vadhera 15 per cent. Thus, the active partner was late Hans Raj Vadhera with his daughters-in-law and two minor grandsons who were admitted only to the benefits of partnership. The firm had come into existence as per the deed of partnership for erecting a multi-storey commercial building on the site premises in Bangalow No. 15, Barakhamba Road, New Delhi. The said bungalow belonged to late Hans Raj Vadhera who contributed it as his capital in the books of the firm. According to Clause 3 of the partnership deed, when Hans Raj Vadhera contributed the bungalow and the sum of Rs. 2,01,000 was credited to his capital account since this was the value put by the assessee on the bungalow in his wealth-tax return for assessment year 1970-71. The same value continued to be the sum debited in the profit and loss account of the assessee-firm till 31-5-1977. In the profit and loss account the cost of land was being shown Rs. 2,01,000 only. Hans Raj Vadhera died in 1971 and even thereafter the same value continued to be shown in the profit and loss account for nearly 7 years.
111. In 1978, the son of Hans Raj Vadhera, i.e., D.R. Vadhera got the property valued as on 8-8-1970 by registered valuer who valued the same at Rs. 36,61,625. The assessee then claimed that the value of the plot should be taken in the profit and loss account on this figure. The revised profit and loss account was also filed. The ITO held that the assessee's claim in this regard was untenable since entries passed in the books of the assessee-firm were on the basis of valuation of the plot as shown by them. Even in the wealth-tax return filed by the deceased the value was shown at Rs. 2,01,000 and the said amount was credited in his personal capital account. As per Clause 3 of the partnership deed the value of the plot had to be taken as shown in the wealth-tax return and it could not be the subject-matter of variation in any subsequent proceedings. The assessee's own conduct in crediting amount of Rs. 2,01,000 to the account of the deceased goes to prove that it was the correct amount. The deceased had shown the value in his wealth-tax return for the assessment year 1970-71 at Rs. 2,01,000 and the WTO had valued it at Rs. 2,75,000 vide assessment order passed in 1971. For all these years, the assessee had not objected to the valuation of the cost of land and had never tried to vary this figure, Even in the consolidated profit and loss account prepared as on 31-5-1977 and submitted in September 1977 the assessee had valued the cost of land at Rs. 2,01,000 only. As per the agreement between Hans Raj Vadhera and the assessee the cost of land was fixed so far as the firm was concerned at Rs. 2,01,000 and the fact that he agreed to take less than the market price could be a separate subject-matter to be considered under the Gift-tax Act.
112. The matter was referred under Section 144 to the IAC after the ITO prepared the draft assessment order and served it on the assessee.
The IAC noted that on 31-5-1977 the major part of the construction work had been completed when the consolidated profit and loss account was made showing the cost of land at Rs. 2,01,000 only. As to what would be the cost of land had to be found only from the partnership deed which made no reference to the market value. The IAC, therefore, approved of the draft order of the ITO in this regard that the value of land should be taken at Rs. 2,01,000 only.
113. The assessee came in appeal before the Commissioner (Appeals) and contested this finding. The Commissioner (Appeals) noted that the assessee had got the plot valued by the approved valuer, B.S. Agarwal on 6-3-1978 and thereafter, vide letter, dated 10-3-1978 it claimed that the cost of land should be substituted by its market value which had been determined at Rs. 36,61,625. Even though Hans Raj Vadhera had died on 9-11-1971 the remaining partners credited his account by a further sum of Rs. 34,60,625. The Commissioner (Appeals) also noted that the wealth-tax assessments for the assessment years 1970-71 onwards had been reopened and the WTO had adopted the value of Rs. 44,98,000 which was the value determined by the departmental valuer. In estate duty proceedings also, the value had been originally computed at Rs. 2,01,000 on 9-9-1974 but taken on estate duty assessment was also reopened. Gift-tax proceedings were also initiated against Hans Raj Vadhera for having been gifted the land to partnership concern but the Tribunal had held that there was no gift.
114. It was urged before the Commissioner (Appeals) that irrespective of what had been declared by Hans Raj Vadhera in his wealth-tax return and what had been initially credited to his account during his lifetime, in determining the income of the firm, the market value of land as on 8-8-1970 should be adopted. Strong reliance was placed on the Supreme Court decision in the case of Bai Shirinbai (supra). The learned Commissioner (Appeals) discussed this ruling at length and found that it was totally distinguishable. Other rulings were also relied on before him but since the learned counsel for the assessee has not placed any reliance on them before us we need not advert to them in detail. The learned Commissioner (Appeals) held that the contract between Hansraj Vadhera and the assessee-firm was binding on both the parties and, therefore, Hansraj Vadhera had agreed to transfer the land to the firm for Rs. 2,01,000 only. This amounted to sale by a partner to the firm. The firm had always understood that it would have to pay a sum of Rs. 2,01,000 for acquisition of the land. The value of the land taken for transfer to the assessee-firm was not dependent on any action by the Income-tax Department later on for its valuation in 1978. Hans Raj Vadhera has never during his lifetime claimed that he was entitled to any thing more than Rs. 2,01,000 for the price of the land. It was well established that in a business it is actual cost which has been paid for is to be taken into account and not the market value for determining the value of the property. In fact the assessee-firm had purchased this land for Rs. 2,01,000. The Commissioner (Appeals), therefore, upheld the order of the ITO.115. The assessee is aggrieved and has come up in appeal. We have heard the learned counsel for the assessee and the departmental representative. The counsel for the assessee referred to Clause 3 of the partnership deed and urged that the intention of the partners was that the value of land should be taken as assessed in the wealth-tax proceedings and not as returned by Hansraj Vadhera. Detailed arguments were urged in this regard. It was next urged that the land came in as capital of the firm and when the firm converted it into stock-in-trade it had the right to value it at its market price as held by the Supreme Court in the case of Bai Shirinbai (supra). The order of the Tribunal in the gift-tax case was referred for certain observations made therein. The learned counsel for the assessee pointed out that the plans for the building were sanctioned in October 1970 and permission to demolish the building was taken later on. Till then, therefore, the land was the capital of the firm and had not become its stock-in-trade.
It was urged what the capital of the firm could not be converted into stock-in-trade before business commenced. There might have been an intention right from the inception to transfer the capital asset as stock-in-trade but it was not converted till the business started. It was possible that the plan might not be sanctioned or the High Court might not stay eviction of Hansraj Vadhera from the premises and in that event the plot of land would remain the asset of the firm.
116. It was pointed out that under Section 14 of the Partnership Act Hansraj Vadhera had contributed a capital asset in kind as his capital in the firm. It thus became property of the firm but it was not acquired as stock-in-trade. It was urged that commercial principles should govern the computation of profit whether the capital asset was acquired free or cheap or at market value as the act of acquisition of capital is not an act of business.
117. The learned counsel for the assessee laid great stress on the interpretation Clause 3 of the partnership deed and urged that this agreement which binds the heirs and assigns of the deceased partner Hansraj Vadhera meant as assessed for wealth-tax purposes and not as returned for wealth-tax purposes. As against this the learned departmental representative wanted us to read the plain words used in Clause 3 of the partnership deed which only meant the value of the land as declared by the deceased in his wealth-tax return. The fact that the deceased who was the governing partner of the firm had during his own lifetime credited his own account with the firm with the sum of Rs. 2,01,000 was conclusive evidence of the intention of the parties as to the value put up on the land. The learned departmental representative pointed out that the observations of the Tribunal in the gift-tax case were only passing reference and were not on the point of interpretation of Clause 3 of the partnership deed.
118. The learned departmental representative further pointed out that the assessee never claimed before the ITO/1AC the right to revalue the land and, therefore, we should not allow the assessee to raise this argument which was for the first time raised before the Commissioner (Appeals). It was further contended that the firm acquired the land as its stock-in-trade and not as capital. The enhancement of liability regarding the value of land as claimed by the assessee-firm would be valid as from the date of valuation on 10-3-1978. The profit and loss account and balance sheets of earlier years cannot be revised retrospectively. There was no liability in presenting in 1977.
119. Alternatively, the learned departmental representative contended that if the assessee's contention is accepted then the firm would be liable to assessment as capital gains when it converted its capital into stock-in-trade. He also pointed out that the heirs of Hans Raj Vadhera would also be liable for assessment of capital gains and wanted as to give directions in this regard under Section 153(3)/(2) (Explanation 3) of the Act.
120. We have considered the rival contentions. The first question to be considered is as to the interpretation of Clause 3 of the partnership deed. We would reproduce the clause here again: The land situated on 15-Barakhamba Road, New Delhi shall be the property of the firm and as taken in the wealth-tax return of Shri Hans Raj Vadhera and shall be credited to his capital account in the books of the firm. Thereafter the respective partners may contribute such capital as they mutually agree upon.
The question when parties entered into a partnership deed is one of intention and the intention can best be judged from the words used in the deed and their subsequent conduct. In this case the words used are that the land was to become the property of the firm: as taken in the wealth-tax return of Shri Hans Raj Vadhera and shall be credited to his capital account in the books of the firm.
The meaning put on these words by the assessee is that the value put for the property was as assessed in the wealth-tax proceeding. We are afraid that such an interpretation of this clause does not command itself to us. The parties have advisedly used the words as taken in the wealth-tax return and this can only mean as returned by deceased Hans Raj Vadhera for wealth-tax purposes or in other words as shown in his wealth-tax return. The question of assessment does not come into picture at all. That this was the meaning assigned to these words by the parties is amply clear from the fact that Hans Raj Vadhera who was the seniormost partner of the firm and the only male partner credited himself in the books of the assessee firm with a sum of Rs. 2,01,000 only which was the amount at which the property had been valued by him in the wealth-tax return for assessment year 1970-71. The position continued till 1978 up to when the books of account showed the value of the land at Rs. 2,01,000 only. The conduct of the parties including D.R. Vadhera who took the place of Hansraj Vadhera after his death in 1971 was that they interpreted this clause as stated by us above till the year 1978.
121. The reason why this clause was introduced in the partnership deed by the deceased is not far to seek. The deceased was an old man and he alone owned the property. His intention obviously was to pass on the benefit to his daughter-in-law and his grandsons by entering into a partnership with her and contributed this property as his capital at a nominal price. The property was admittedly worth much more than Rs. 2,01,000. The benefit in fact passed on after his death but in 1978, the assessee was obviously advised that it may be more beneficial to rake up this issue than to pay tax on a sum of Rs. 40 lakhs or so which was the difference between the market price of the land and the value credited to the account of the assessee. It was then that the whole controversy was raked up. On a plain reading of the terms of the clause and the conduct of the parties till the death of Hansraj Vadhera, we have no doubt whatsoever that the parties intended that the property should pass on to the firm for a sum of Rs. 2,01,000 only.
122. The learned counsel for the assessee has placed reliance on certain observations in GT Appeal No. 19 (Delhi) of 1978-79 decided by Delhi Bench 'E' in its order, dated 21-2-1980, GTO v. D.R. Vadhera, legal heir of late Hansraj Vadhera on the point at issue. In that case after holding that there was no gift involved in para 10 the Tribunal observed as follows: Before concluding we would like to observe that the exercise in the present case is perhaps of academic interest only. Clause 3 of the deed of partnership, which has been quoted by us in paragraph 1 of the order, has been, it is stated, understood by the assessee as meaning the contribution of the property as his capital by late Shri Vadhera at such value as might be taken in the wealth-tax proceedings. This is so in spite of somewhat faulty language of the clause. We understand that subsequently the value of this property was credited to the late Shri Vadhera's capital account in the books of the partnership at an enhanced value. We also understand that on the death of the deceased, late Shri Vadhera, the Estate Duty authorities took the fair market value of the entire property in his estate for estate duty purposes. When all these aspects are looked into vis-a-vis the provisions of Section 50A of the Estate Duty Act, it may be that whatever the assessee is asked to pay as gift-tax corresponding deduction will have to be given in the estate duty assessment. On enquiry from the Bench, the assessee's counsel stated that his client was prepared to settle the matter with the departmental authorities. However, this will be for the Department to consider.
Obviously, what has been stated in the above paragraph by the Tribunal is what has been urged before them on behalf of the assessee and there is no finding by the Tribunal itself as to the interpretation of Clause 3 of the partnership deed. Therefore, these observations have no binding value so far as the proceedings are concerned before us. We hold that the parties intended and the word used in Clause 3 of the partnership deed actually meant, that the value of the land to be credited to the deceased was as shown by him in his wealth-tax return and not as assessed or as modified later after the assessments were completed, by reopening of assessments.
123. The next question that has been raised on behalf of the assessee is that even if that was the intention of the parties, what came to the firm by contribution by Hansraj Vadhera was the capital of the firm and that capital was later on converted into stock-in-trade of the firm and the assessee has a right to value the stock-in-trade at the market value. Strong reliance is placed on the decision of the Supreme Court in the case of Bai Shirinbai (supra), for this proposition. That was the case where the assessee held by way of investment several shares in companies. Later on, she commenced a business in shares converting the shares into her stock-in-trade of the business and subsequently sold them at a profit. The Supreme Court held that the assessee's assessable profits on the sale of the shares was the difference between the sale price of the shares and the market price of the shares prevailing on the date when the shares were converted into stock-in-trade of the business in shares, and not the difference between the sale price and the price at which the shares were originally purchased by the assessee. The question for consideration is whether this ruling has any application on the facts of the case. In Kanga and Palkhivala's Law and Practice of Income-tax, Seventh Edition, Volume I, the learned authors under the head 'Capital investments converted into stock-in-trade' comment as follows: Where an investor converts his capital assets into stock-in-trade and starts dealing in them, the taxable profit on the sales must be determined by deducting from the sale proceeds the market value of the assets at the date of their conversion into stock-in-trade (since that is the cost to the business) and not the original cost to the investor....
Thus, to get the benefit of this ruling the assessee himself must first be an investor and then convert his capital asset into stock-in-trade.
The position, however, is just the reverse. The firm came into existence specifically to construct the multi-storey commercial building on the site premises 15-Barakhamba Road, New Delhi. What Hansraj Vadhera contributed in the firm as his capital was Bungalow No.15, Barakhamba Road, New Delhi and this came into the firm as stock-in-trade of the firm. The firm never intended to do any thing else with this land except to build upon it a multi-storey building.
The contention of the learned counsel for the assessee is that there was a possibility of the President of India exercising the right of entry or the plans of the building not being passed and, therefore, till the plans were passed, it remained the capital asset of the firm.
We are afraid we cannot accept this contention. The land was the stock-in-trade of the firm right from inception. The value of the land might have been credited to the capital account of Hansraj Vadhera but the firm had no other use of the land except as its stock-in-trade. In fact, in the gift-tax appeal (supra), a copy of which is on pages 208 to 217 of the paper book, in para 1 it is stated that it is common ground that the said property became the stock-in-trade of the partnership. It is open to the partner to contribute as his capital.
The stock-in-trade of the firm and that is what Hansraj Vadhera did in the instant case. There is really no parallel between the case before us and the case of Bai Shirinbai (supra) decided by the Supreme Court.
The land in this case never became the capital of the firm. It came in the stock-in-trade at a fixed price and whenever a firm or a proprietor obtains its stock-in-trade at a cheap price and sells it at a higher price, the difference must be taxed as its revenue income and that is what has happened in the instant case. The firm obtained the land for Rs. 2,01,000 when it was worth Rs. 40 to 50 lakhs. Therefore, when it sold the flats, the difference between the selling price and the cost of construction including the land, etc., would be its revenue profit.
It is not a case in which the firm came into existence with the object and for the purpose of holding the land as its capital asset and later on converted the same into stock-in-trade. Here the firm came into existence specifically for the purpose of constructing the multi-storey building on this piece of land which was contributed by Hansraj Vadhera. It thus came into the firm as its stock-in-trade and question of conversion and its valuation at market price does not arise. The assessee's case, therefore, must fail even on this ground.
124. There is another aspect of the case which we may touch upon briefly, though it was not argued by either party. The assessee is entitled really to value its closing stock-in-trade either at cost or at the market value whichever is less or it can value the stock-in-trade at cost or market price. The method of accounting has to be regularly followed. In this case the assessee has valued the closing stock-in-trade, i.e., the land consistently at cost which is lower than the market value. That is clear from the profit and loss account till May 1977. If the assessee had intended at any time to value the closing stock at the market value then the value debited should have been much more than Rs. 2,01,000. The assessee, thus, never adopted the market value as the method of accounting for valuing its closing stock. Thus, in the profit and loss account which was originally filed, the assessee debited the sum of Rs. 2,01,000 only as the cost of land and that was the correct cost. The revision of the profit and loss account debiting the value at much higher figure was rightly rejected; The fact that after 1978 the wealth-tax proceedings were reopened, gift-tax proceedings were started and estate duty proceedings have also been reopened to increase the value of this land is totally immaterial and does not at all affect the point at issue regarding the valuation of land in the assessments of the assessee-firm. The orders of the authorities below in respect of the valuation of land are, therefore, confirmed and the assessee's appeals dismissed in this regard. This disposes of all the points in controversy in all the appeals.
1. I have carefully gone through the order of my brother the learned Judicial Member but with great respect do not agree with him on the following points: 1. That the land which was contributed by late Shri Hansraj Vadhera came into the firm as its stock-in-trade and the question of conversion and/or its valuation at market price subsequently does not arise.
2. That the assessee firm charged 'on-money' on sale of certain flats.
2. Paras 110 to 124 deal with the question as to what should be deducted in the computation of business profits of the assessee-firm for the cost of such stock-in-trade whatever be its nature, which it sold to the buyers of different flats at different points of time.
Whereas paras 65 to 103 deal with the question as to whether any addition is called for on the ground that the assessee-firm realised more money by way of sale proceeds of flats to different buyers in different years than what has been accounted for in the books of account maintained for the respective years.
3. I shall first deal with the question discussed in paras 110 to 124.
The facts which have a bearing on the decision on this complicated question may be briefly set out as under: One Shri Hans Raj Vadhera was the lessee of a land situated at 15, Barakhamba Road, New Delhi. The original lease of this land was granted on 31-5-1932 to Narain Das Hans Raj, a firm of contractors of New Delhi by the President of India (sic), the lessor in terms of the lease deed, dated 31-5-1932.
It appears that subsequently, the firm was dissolved and a leasehold interest in the said land was allotted to the share of one of the partners namely Shri Hans Raj Vadhera. The lessee enjoyed the said piece of land and the residential house constructed thereon until 8-8-1970. However, it appears that the lessee Shri H.R. Vadhera, decided in August 1970 to bring in the said property in the common stock of the property belonging to a partnership concern to be formed for carrying on a business as dealers of property for commercial use.
Accordingly, a partnership deed was executed on 8-8-1970 between Shri H.R. Vadhera and his daughter-in-law Mrs. Pushpa Vadhera w/o Shri Dev Raj Vadhera, Two minor children of Mrs. Pushpa Vadhera were also admitted to the benefits of the partnership. It is relevant to extract the under-mentioned clauses of the said partnership deed: (2) The business of the partnership shall be of erecting on the ground comprises in the bungalow No. 15, Barakhamba Road, New Delhi, a multi-storeyed commercial building and to do any other type of business or business and activities during the course of this partnership business.
(3) The land situated on 15, Barakhamba Road, New Delhi shall be the property of the firm and as taken in the wealth-tax return of Shri Hans Raj Vadhera and shall be credited to his capital account in the books of the firm. Thereafter the respective partners may contribute such capital as they mutually agree upon.
(9) That in the case any dispute that may arise during the course of partnership, each partner shall be entitled to nominate an arbitrator to represent him and her and in case the arbitrators do not come to any unanimous decision, an umpire shall be appointed by the arbitrators, whose decision shall be final and binding on both the partners.
4. It would be pertinent to mention at this stage that what Shri H.R.Vadhera owned in the said plot of land was only a leasehold interest.
Shri Vadhera, in his first wealth-tax return submitted for the assessment year 1970-71 had shown the value of such interest at Rs. 2,01,000 only which his legal heirs revised after the death of Shri H.R. Vadhera to Rs. 31,81,400. The Wealth-tax Officer, however, assessed the value of such interest for the assessment year 1970-71 at Rs. 44,98,000. It may be mentioned here that the assessment under the Estate Duty Act has also become final as respects the estate passing on the death of Shri H.R. Vadhera on 9-11-1971. The Assistant Controller of Estate Duty took the value of the plot as on the date of death of Sh. H.R. Vadhera, i.e., 9-11-1971 at Rs. 55,02,000 and after giving credit of Rs. 36,61,625, he worked out the value of deemed gift to the extent of Rs. 18,40,375. It was informed that the Appellate Controller of Estate Duty, subsequently held that the price of Rs. 36,61,625 obtained by the deceased from the firm was the full and fair market value of the property as on 8-8-1970. The said price corresponds to the amount ultimately agreed upon to be credited to the capital account of Shri Vadhera in the books of the firm.
5. After the firm was constituted on 8-8-1970, plans were submitted for constructing a multi-storeyed building to N.D.M.C. and they were approved in October 1970, although the Land & Development Officer had already terminated the lease in favour of Shri Vadhera. In or about October 1970, the residential house began to be demolished and at that moment certain adverse factors were brought out to the proposed scheme of the building project by the two daughters of late Shri H.R. Vadhera who claimed to be the co-owners of the said leasehold interest in the said plot of land and filed a suit in the Court for injunction. The Court stayed the demolition. However, later they withdrew the suit on compromise of being paid a sum of Rs. 1,50,000 each. Thereafter only the building project could go through and could be almost completed in 1977.
6. In the assessments of the firm for the various years under appeal, the firm claimed, through a revised consolidated profit and loss account that in working out its profits and gains from business arising out of the sale of constructed flats to the buyers, deduction should be made for a sum of Rs. 36,61,625 and not Rs. 2,01,000 represented by the right of user of the space over the said plot of land transferred in favour of the buyers of the flats. The ITO and the Commissioner (Appeals) for the reasons given in their respective orders did not admit this claim of the assessee but restricted the deduction to the amount of Rs. 2,01,000 only which was initially credited to the capital account of Shri H.R. Vadhera. The primary reason for disallowing the claim of the firm is spelt out in paras 10 and 11 of the order of the Commissioner (Appeals) which need not be reproduced here. On these broad facts, the learned counsel for the assessee urged before us that the decision of the authorities below was erroneous both on points of fact and in law on the following grounds: 1. The terms of the partnership deed clearly indicated that what Shri H.R. Vadhera was contributing to the partnership was capital not in terms of money but in terms of his leasehold interest in the plot of land at 15, Barakhamba Road, New Delhi which was to become the property of the firm thereafter. This contention, he submitted, was borne out clearly by the text of Clause 3 of the deed of partnership itself which stated inter alia that the 'land situated at 15, Barakhamba Road, shall be the property of the firm and shall be credited to his capital account in the account books. Thereafter, the respective partners may contribute such capital as they mutually agree upon'. He submitted that this contention was further supported by the recital in a number of transfer agreements entered into between the assessee firm as sellers of build up flats and the buyers.
2. The learned counsel then submitted that what amount was accepted as capital contribution depended on the intention and conduct of the parties to the agreement as spelt out by Clause 3 and the ultimate accounting accepted by the partners as correct. He submitted that the partners of the firm finally agreed upon that such capital contribution should be taken at a sum of Rs. 36,61,625 and not Rs. 2,01,000 which was the value declared in the original return of wealth-tax submitted by Shri H.R. Vadhera himself. The heirs of the deceased stepping into the shoes of Shri Vadhera who really had the right to claim upon that capital and the remaining partners had agreed that the capital contribution was of that order. If a dissolution of the firm was to take place the heirs would clearly be entitled at the time of settlement of accounts on the basis of the understanding reached to demand back only such capital as was agreed upon to be representing the real capital contribution and ultimately credited to the capital account before dissolution and the income-tax authorities could not rely upon the terms of Clause 3 of the agreement and prefer their own interpretation which was not warranted on the facts and in the circumstances of the case, particularly, in the light of the integrated wealth-tax assessments and the estate duty assessments.
3. There was no question of regarding the capital contribution in the form of the leasehold interest in the land as the sale of the said interest in the property by the contributing partner in the firm. The learned counsel submitted that it was well settled that when an assessee hand over the property to become the property of a newly constituted firm to which becomes a partner representing his share in the capital contributed the transaction cannot be regarded as a 'sale' of the property so made over by the partner to the firm.
He cited the decision of the Supreme Court in CIT v. Hind Construction Ltd.  83 ITR 211 and urged that a partnership firm under the Indian Partnership Act was not a distinct legal entity apart from the partners constituting it and in law the firm as such has no separate rights of its own in the partnership assets and what is firm's property is really the property in which all partners have a joint or common interest. Consequently, when a partner contributes any property to a partnership concern, as his capital contribution, there is no transaction of purchase or sale between the firm and the partners.
4. It was next urged that it was fallacy to assume that the capital contributed by a partner at the inception of the firm, whether it was given in the form of money or in the form of property, represented an 'asset' acquired by the firm on its inception. In no event the property obtained as capital contribution by the partner to the firm could be regarded as an act of acquisition by the firm of any 'stock-in-trade' of the business to be carried on by the firm after its constitution and it followed logically that the firm had to treat the property obtained from the partner as a capital asset belonging to it at the point of inception. Later on, it could if so decided, deal with such property as the 'stock-in-trade' whereupon the firm had a right to revalue the property so obtained from the partner when it decided to deal with such property as a trading asset. In this connection, he relied on the decisions of the Supreme Court in Bai Shirinbai (supra) and CIT v. Groz-Beckert Sabboo Ltd.  116 ITR 125.
It was urged that in any view of the matter, whether it was regarded as of capital originally at the value of Rs. 36,61,625 or whether it was regarded as a subsequent revaluation by the firm itself and the asset contributed by the partner to become property of the firm, the assessee-firm was entitled to a deduction of Rs. 36,61,625 in the computation of its income for all the assessment years under consideration, being the fair market value of the capital contribution as on 8-8-1970.
5. The learned counsel lastly submitted that if Shri Vadhera by himself had carried on the same business as a sole proprietor he would be entitled to have the profits and gains of such a business determined on the basis that fair market value of the land should be debited to the trading account of the business. According to the learned counsel, it would make no difference at all if Shri Vadhera chose to carry on the same business in partnership. The method of computation of real profits of business could not vary merely on the individual deciding to carry it over through partnership.
7. The learned representative of the department vehemently supported the orders of the authorities below and his contentions have already been reproduced by my learned brother in his judgment and I need not repeat it again.
8. After considering the rival contentions of the parties, I find myself unable to hold that the firm purchased any stock-in-trade as such from one of its partners at the very point of time of its constitution. What one of the partners, Shri Hansraj Vadhera, contributed to the partnership was capital in the form of his interest in the plot of land. This capital became the property of the firm just as any cash equivalent that would have been contributed. Such property was neither stock-in-trade of Shri Vadhera before the contribution nor it became the stock-in-trade of the firm at the point of contribution to the firm. The subsequent act of the firm, or its partners, on dealing with the property or whatever rights were attached to it as stock-in-trade does not impart the character of stock-in-trade to the capital asset of the partner contributed as capital to the firm. I also find force in the submission of the learned counsel that if Shri Vadhera by himself, without forming a partnership, would have undertaken the business venture of constructing flats on the property, which was hitherto his capital asset, he would have been entitled to work out his profits and gains of such venture by substituting the market value of the capital asset for its cost. In this connection, I rely on the decisions of the Supreme Court in Bai Shirinbai (supra) and Groz-Beckert (supra). Shri Vadhera does not become disentitled to do so simply because he chose to pool his asset as property of the firm and the same business was carried on by him not as a sole proprietary concern but as a partnership concern. The general principles of commercial accounting and trading applied to the determination of real business profits do not get altered merely if an individual chooses to carry on a business not individually but in partnership. In this connection, it is pertinent to reproduce the following observations of their Lordships of the Supreme Court in Malabar Fisheries Co. v. CIT  120 ITR 49. The Supreme Court quoted with approval the following from Lindley on Partnership: But this is not the legal notion of a firm. The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm ; but, speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it ; any change amongst them destroys the identity of the firm ; what is called the property of the firm is their property, and what fire called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer.
Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property, or firm's assets all that is meant is property or assets in which all partners have a joint or common interest....
9. The above observations of the Supreme Court support the contention of the assessee. In this view of the matter, it was open to the firm as well as to Shri Vadhera that in arriving at the real and correct profit and gains of the business, the market value of what was once a capital asset should be adopted if the capital asset became stock-in-trade at any point of time for being dealt with as such in the business of construction to be carried on by the firm. The stand taken by the assessee is consistent with the pattern of assessments made in the case of Shri Vadhera under the allied Acts namely Wealth-tax Act, Estate Duty Act and the Gift-tax Act. In the estate duty assessment, it was clearly accepted that the capital contributed by Shri Vadhera to the partnership concern was of the order of Rs. 36,61,625 which according to the Assistant Controller was representing market value of the deceased in the land as on 8-8-1970. Indeed the controversy raised further was whether he had adopted less market value than its fair market value and an attempt was made to include the said difference as 'deemed gift' to the other partners. For wealth-tax purposes, the value of the capital contributed was accepted to be in the minimum of Rs. 31,81,400 for the assessment years commencing from 1970-71. The position regarding the value of land returned for different assessment years and the value of land assessed by the Wealth-tax Officer are as under: As on Value of land declared Value of land assessed by the WTO 10. Another attempt was made by the department to levy gift-tax on Shri Vadhera for having accepted credit to his capital account against contribution of interest in land at Rs. 2,01,000 against what was considered to be the full fair market value of such interest at the time the same was given over to the firm. The matter went up to the Tribunal in GT Appeal No. 1978-79 relating to the assessment year 1971-72 and the Tribunal observed as under in para 10 of its order, dated 21-2-1980: 10, Before concluding we would like to observe that the exercise in the present case is perhaps of academic interest only. Clause 3 of the deed of partnership, which has been quoted by us in paragraph 1 of the order, has been, it is stated, understood by the assessee as meaning the contribution of the property as his capital by late Shri Vadhera at such value as might be taken in the wealth-tax proceedings. This is so in spite of somewhat faulty language of the clause. We understand that subsequently the value of this property was credited to the late Shri Vadhera's capital account in the books of the partnership at an enhanced value. We also understand that on the death of the deceased late Shri Vadhera the Estate Duty authorities took the fair market value of the entire property in his estate for estate duty purposes.
11. On the accepted facts, it would not be only unequitable but rather inconsistent to hold that the capital contributed by Shri Vadhera to the firm in the form of his interest in the immovable property was anything less than Rs. 36,61,625, On the other hand, it has been vehemently contended by the representative of the department that the authorities below were justified in taking the capital contribution at Rs, 2,01,000 only which was the stipulated amount as per terms of Clause 3 of the partnership deed. According to the learned departmental representative a strict and legal construction of such clause supported by initial entries recorded in the account books cannot lead to any other conclusion. Again, I am unable to accept this contention. In the first instance even a strict and literal construction of this clause does not warrant such a conclusion. Clause 3 provides 'the land situated at 15, Barakhamba Road, shall be the property of the firm and as taken in the wealth-tax return and shall be credited to his capital account . . . '. Even the literal construction of the language used does not warrant the meaning that the amount to be credited to the capital account shall be what is declared in the first wealth-tax return submitted for the 1970-71 assessment year. Indeed no assessment year to which a particular return shall relate in this clause is specified. Secondly, all what the clause refers to in the first part is the land which is to become the property of the firm as 'taken' in the wealth-tax return. It is right to say that for purposes of any wealth-tax return, what is to be taken as the value of any asset is the fair market value of the asset. Then the expression 'taken' suggests as determined under the act by the competent authority. The intention to leave the value of contribution to be determined by the Wealth-tax authorities could be the natural intention, for none would ordinarily like to place lesser value on his capital asset while contributing it to a genuine partnership than its fair market value. One should like to avoid that on one hand he loses as a partner in getting full credit of his capital and on the other hand, he still faced the risk of paying higher estate duty, wealth-tax and even gift-tax. In my opinion, therefore, the clause is so worded as to ensure enough safeguard from tax point of view to Shri Vadhera.
12. I would, therefore, hold that the firm is entitled to deduct a sum of Rs. 36,61,625 in the computation of its real and correct profits and gains of business of dealing in real state. However, before closing this issue, I would like to still analyse the real and true character of the transaction involved in this matter. In my view, what Shri Vadhera parted with in favour of the firm was a capital asset represented by his leasehold interest in the land and what was parted with by the firm in favour of buyers of flats was only the right of user of space over the said land which right really was treated by the firm as its stock-in-trade after it lodged upon a construction project.
In my opinion, therefore, ground Nos. 3, 4 and 5 are to be decided in favour of the assessee and the total income for all the assessment years shall have to be computed accordingly.
14. The department's case for the impugned additions on account of on-money was sought to be defended mainly on the following grounds: (a) It should be presumed that the assessee sold all the flats uniformly at such rates only as were indicated in the pamphlet produced by Nath Bros, and if the actual sale proceeds were found to be in any case not in conformity to such rates, the difference must be presumed to have been received as on-money.
(b) It should be presumed that sale of all flats of the same floor in a given period must have been made at a uniform rate.
(c) It should be presumed that re-sale of surrendered flats must have been made at prices higher than the prices at which they were booked or sold originally or at least at the rates indicated in the pamphlet.
(d) It must be presumed that there was a general rise in the prices of flats in commercial buildings considering that about 70 of them out of 80 were booked in 1970 itself. According to the learned departmental representative, no prudent businessman could be willing not to take advantage of such rise in prices and still prefer to sell its flats at lower rates on the same floor in the same period and some even in later years at lower rates (as compared with pamphlet rates).
(e) It has to be noted that there was a notorious practice in 1970 to 1972 of on-money transactions in the sale of multi-storeyed buildings for which the Tribunal was bound to take judicial cognizance of such a practice.
(f) Although there was no direct evidence of a single transaction, supporting the receipt of 'on-money' yet there was enough circumstantial evidence from which an inference could be drawn for receipt of on-money.
15. Against the above arguments, the learned counsel of the assessee put forward the following propositions in writing for re-consideration of the Tribunal supported by the authorities cited in the margin of these propositions: Propositions urged in support of ground Nos. 4 & 5 for the assessment year 1972-73 and identical grounds for other assessment years in appeals before the Tribunal: 1. There is absolutely no legal evidence before the IT Authorities to hold that the assessee received any 'on-money' at any time from any person(s) who booked the flats and retained it ; nor from any person(s) who booked the flats subsequently on the surrender of the same by the persons who had first booked it.
2. The additions made by the ITO are based on mere conjectures, surmises and suspicion. It is well settled that such assessments cannot be sustained in law. Suspicion, howsoever strong, cannot take the place of proof for the onus is on the Department to justify an assessment of concealed income.
3. No evidence was adduced by the IT authorities to show that the market value of the fiats at the time of re-booking by the subsequent allottees had arisen from what was prevailing at the time of the booking to the original allottees. On the contrary, the assessee adduced evidence to establish that owing to the dispute in the title of the land and the obstruction caused by persons residing therein, there was hesitancy on the part of buyers to acquire the flats throughout the relevant period.
4. A person is taxed on income what he actually earns and not that he could have earned but failed to do so as a prudent businessman, notwithstanding whatever be his explanation, satisfactory or unsatisfactory, for showing such lack of business prudence. Indeed, he may not be required to give any explanation therefor. In this case not a single buyer had stated that the assessee could have earned a pie more than what he actually did by selling the flat to him or that he, in fact, received more than what was accounted for in his books.
5. Whether, the assessee received any 'on-money' or not is essentially a question of fact to be determined on the basis of evidence adduced on either side. There is no presumption that he must have received such 'on-money'. Even if there anybody placed in a similar position would have or in fact received 'on money'. Even if there was such a presumption it was wholly rebutted by the assessee by not only by an emphatic denial but also by adducing all relevant evidence, oral as well as documentary, in the form of statements of all persons who booked the flats at any time ; the statements of moneys paid by them ; the receipts issued by the assessee ; agreement with the buyers and the like. On the other hand, there was always the presumption against the concealment of income or evasion of tax, that is in favour of honesty and good faith of the assessee. A taxpayer is assumed to have returned his income correctly unless it is proved otherwise by the IT authorities, by adducing legal and relevant evidence.
6. The circumstances pointed out by the ITO for making the impugned additions are only two, the following viz: (i) that a few of the original buyers had deposed that the flats were booked at higher rates than what the assessee admitted; and (ii) that a few of the flats were re-booked even after a lapse of some time in favour of subsequent allottees at the original rates. Even those who deposed at (i) above that the rates were higher stated categorically that everything that was paid was accounted for by the assessee firm and was returned in full to them.
It was submitted that none of the above circumstances could lead to the conclusion reached by the ITO. Assuming that these circumstances could be relied upon, equally ought to be relied upon the circumstances that none of the persons who were examined by the ITO had ever stated that they paid any 'on-money' to the assessee. On the other hand, they categorically denied to have paid any such 'on-money'.
7. The learned ITO had not brought on record even a single instance where any of the buyers of the flats were interrogated as to how they had accounted for the alleged 'on-money' which they were assumed to have paid to the assessee in their personal assessments ; or whether they had been at all assessed in respect of the alleged undisclosed investments in the flats purchased by them.
8. The learned ITO had not even interrogated any of these persons who were examined by him for purposes of eliciting the reason why they secured the re-booking of the flats at the same price although it happened much later than the original booking.
9. The presumptions and surmises on which the ITO has based his findings of 'on-money' are further found wrong by the fact that no unaccounted for investment has been found in the construction account nor were there any cash or valuables or any trace of any unaccounted for investment or expenditure found at the time of search and seizure simultaneously carried out at the premises of the firm, the residence of the partners, their relatives, chartered accountants and whosoever could be found connected with the assessee.
17. After considering the rival contentions of the parties, I am of the view that the basic question for determination in this case is whether any evidence or material has been adduced by the department to support the finding of the alleged receipt of 'on-money' by the assessee in respect of each and every built up space sold by it. I must frankly say that the receipt of 'on-money' is not a matter of presumption. It has to be established as a fact by the party who alleges the receipt of 'on-money' and heavy onus in that behalf lies on the department specially when the assessee vehemently challenges the validity of such a presumption and points out circumstances which lean in his favour. I do subscribe to the broad and general statement that in black money transactions, when two parties are involved, both try to conceal their own black money. ft would be very difficult to have any admission from either of them as respects on-money involved in the transaction. But the question is whether such a difficulty can be legally surmounted only by the presumption that on-money must have been received or whether such a presumption has to be supported by any direct evidence or even by circumstantial evidence of an unquestionable character. The circumstantial evidence may be admissible to prove a fact.
Unimpeachable circumstantial evidence may be admissible in certain cases to support such a presumption but the question is what is that circumstantial evidence on which the department relies in this case. In my view, the only circumstantial evidence on which the department seeks to rely in this case are the presumptions that have already been stated above. Presumptions by themselves are not circumstantial evidence.
Circumstantial evidence must be either oral or documentary which pointedly support the validity of the inference sought to be drawn. In this case, it is common ground that there is no documentary whatsoever either in the form of any sale deed agreement of sale, or any receipt of 'on money' or any correspondence between the buyer and the seller establishing that 'on money' was paid. As respects oral evidence, it is entirely contradictory to the presumptions sought to be supported on behalf of the department. The only circumstantial evidence on which a great stress has been laid on behalf of the department is an undated and unsigned cyclostyled pamphlet which came into the hands of the department at the instance of the buyer Nath Bros. The assessee denies that the pamphlet was issued by it and department is unable to falsify the denial. The imperfections pointed out in the pamphlet earlier also suggest that this could not have been issued by the assessee. Besides, no other buyer had admitted the existence of or produced such a pamphlet. In short, the department case is that whatever rates are shown in the pamphlet were the actual rates at which the flats were booked notwithstanding whatever might have been received from the buyers as recorded in the account books and whatever might have been returned to them as recorded in the account books at the time of surrender.
18. The other circumstantial evidence on which the department seems to rely is the alleged prevailing rise in the trend in the prices of commercial flats at the relevant point of time. This alone is merely an argument which has not been supported by any evidence whatever. On the other hand, the circumstantial evidence is rather in favour of the assessee in two ways: (1) that at the time of search, no incriminating documents or any unaccounted for cash, jewellery, or any other valuable articles were found nor such a discovery was made later on ; and (2) that the cost of construction has been entirely accepted to be correct by the department. It suggests that it was only the money that was accounted for in the books which was utilised for construction. In my opinion, therefore, there is considerable force in the submission of the learned counsel of the assessee that there should be a very strong circumstantial evidence in the absence of any direct evidence for the validity of finding to be recorded as respect the receipt of 'on-money', which in this case is missing.
19. I have perused the statements of various witnesses recorded and have taken all the evidence into consideration which have been compiled in the paper book filed by the assessee and by the department. In my opinion, the case of receipt of 'on-money' is not established by the department at all by producing any evidence. I am also of the opinion that it cannot be said that at the relevant period of time any general practice was prevalent that 'on-money' had to be a necessary accompaniment with such transactions, at least none such practice has been established. The department had also failed to produce any comparable date or statistics to show that the market rates at which the flats were being booked at the relevant time by others, if any, was much higher than that at which they were booked or sold by the assessee. I am, therefore, unable to support the presumption of the department as they are based on no evidence direct or circumstantial and have consequently to hold that the impugned additions made on account of the alleged receipt of 'on-money' are merely based on no evidence except conjectures, surmises and suspicions. They cannot be sustained and have to be deleted and I hold accordingly that the total income for the respective years be determined by deleting the additions made on account of receipt of 'on-money' at the time of original booking and also at the time of re-booking of flats.
20. Except for the two points discussed in the foregoing paras on which I have recorded my note of dissent, I agree with the findings of my learned brother in respect of all other points.