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Golani Bros. Vs. Assistant Commissioner of - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Pune
Decided On
AppellantGolani Bros.
RespondentAssistant Commissioner of
Excerpt:
1. these cross appeals were heard together and are being disposed of by the common order for the sake of convenience.2. the brief facts giving rise to these appeals are these. the assessee is a partnership concern carrying on the business as civil contractors for the last 30 years. it has been constructing buildings mostly on behalf of the government and of semi-government organisations according to the specifications provided by the contractees. since its beginning, it is being assessed to income-tax.3. in addition to the above, the assessee also obtained a contract from jalgaon municipal committee (hereinafter called jmc) to construct a high-rise building at jalgaon on the land provided by jmc. the relevant details relating to such contract are hereby stated : 4. jmc, jalgaon had.....
Judgment:
1. These cross appeals were heard together and are being disposed of by the common order for the sake of convenience.

2. The brief facts giving rise to these appeals are these. The assessee is a partnership concern carrying on the business as Civil Contractors for the last 30 years. It has been constructing buildings mostly on behalf of the Government and of semi-Government organisations according to the specifications provided by the contractees. Since its beginning, it is being assessed to income-tax.

3. In addition to the above, the assessee also obtained a contract from Jalgaon Municipal Committee (hereinafter called JMC) to construct a high-rise building at Jalgaon on the land provided by JMC. The relevant details relating to such contract are hereby stated : 4. JMC, Jalgaon had awarded the job of development of V.V. Market, with high-rise administrative building at Jalgaon, to the appellant, vide an agreement dated 18-10-1988, which has been amended from time to time by supplementary agreements. (In all seven supplementary agreements). The project was in respect of the development of a plot of land ad-measuring about 5 acres, by constructing on it a shopping complex, vegetable market and a high-rise administrative building of 17 storeys, as per the drawings and designs to be supplied by the JMC through their architect, Kabre Choudari, Nasik. The aforesaid vegetable market, shopping complex and high-rise administrative block are not separate buildings but all of them are a part of a single building complex. The aforesaid building complex was named as V.V. Market. The aforesaid scheme was a self-financing one. The funds for the construction were to be generated by sale of premises on ground, first and second floors.

The project is completed on leasehold basis on the land belonging to the JMC and therefore no outright sales of premises could be made. The developer was to nominate the prospective occupants of the premises to the JMC for entering into a sale agreement against receipt of privilege amount. This privilege money was to provide the requisite funds for the construction of the project. The developer was to provide a number of shops and stalls at highly subsidised rates and the complete high-rise administrative building was to be provided to the JMC free of cost. In addition, a number of other amenities were also to be provided free of cost. The scheme was to be executed within 24 months from the date of the aforesaid agreement. The work on the scheme commenced on 18-10-1988 in full swing but it came to a grinding halt on account of a stay imposed by the Collector, Jalgaon on the basis of complaints by some local persons, who were opposed to the aforesaid scheme floated by the JMC. The stay was subsequently vacated. Thereafter a group of people under the leadership of Mr. J. B. Mahajan, filed a writ petition in the High Court Bench at Aurangabad, which was dismissed. Later on, the same group carried the matter to the Apex Court at New Delhi. The matter was thus dragged on till September, 1991, when ultimately the Supreme Court ruled that the Scheme was entirely in order and that the developer should proceed with the work of the project as per agreement with the Jalgaon Municipal Council. In view of the aforesaid litigation, the sale of shops was adversely affected, as no one wanted to invest in a disputed project. This resulted into acute shortage of funds. In order to overcome the shortage of funds a fresh supplementary agreement was made with the JMC under which the JMC was to sell the residential units on behalf of the developer for a charge of 196 fees on the receipts, towards the service charges. This scheme got an overwhelming response and the JMC was able to sell 100 residential units. The work thus got a boost and the execution of the balance work was taken up in right earnest. In the light of the aforesaid response the JMC was requested to take over the balance 206 residential units on II, III & IV floors of the commercial complex and sell the same on the aforesaid lines as per the previous supplementary agreement.

5. The JMC was agreeable to the aforesaid proposal. However, the Collector, Jalgaon again stayed the relevant Resolution of the JMC.This gave rise to yet another dispute and the work on the project suffered yet another set-back. After lot of wrangling the Urban Development Minister, Maharashtra intervened and gave this approval to the aforesaid proposal. Accordingly 6th & 7th supplementary agreements were entered into with the JMC and the work on the project was restarted from 1-8-1996. The entire commercial complex has been completed and handed over to the JMC on 20-5-1999. The high-rise administrative building is almost complete except for some minor work.

6. The appellant was to provide the following shops, stalls, or premises at concessional rates to JMC or/and its nominees : (i) 472 Vegetable stalls in basement at the rate of Rs. 3,000 per stall.

(iii) 39 shops without mezzanine floor, on first floor at the rate of Rs. 40,000 per shop.

(i) Complete High Rise Administrative Seventeen Storeyed Building with elevated parking.

(ii) Five shops with basement on ground floor to the trustees through JMC.8. In addition, the following amenities were to be provided free of cost.

(c) One Indoor type Electrical Transformer of 1000 KVA each for Administrative Building.

(f) Six Elevators for Administrative Building including two Glass Capsule Lifts.

(g) Fire fighting arrangements for market as well as Administrative Building.

9. In respect of civil contracts, the assessee had been adopting "work-in-progress" method and returning profits accordingly. However, in respect of the contract for construction of V.V. Market, on behalf of JMC, it adopted "project completion" method keeping in view the peculiar features of the contract. Accordingly, it did not offer any profit till assessment year 1993-94. The returns filed by the assessee upto assessment year 1993-94 were accepted by the Assessing Officer subject to minor additions.

10. In the month of June, 1994, a survey operation under section 133A was conducted for TDS purpose only. Later on a search and seizure operation under section 132 of the Act was conducted at the premises of the assessee on 11-8-1994 in the course of which some incriminating documents were found and seized. The seized material revealed that assessee had been charging "on money" on the sale of shops in the V.V.Market. In the course of search, the statement of Shri Shankarlal D.Golani, senior partner of the assessee-firm was recorded under section 132(4). The said partner admitted in his statement, the unrecorded investment in the construction of V.V. Market upto 30th August, 1994 to the extent of Rs. 75 lakhs. The source of such investment was stated to be out of "on money". The details of such disclosure was stated as under :- Assessment year 1991-92 - Rs. 10,00,000 Assessment year 1992-93 - Rs. 15,00,000Assessment year 1993-94 - Rs. 10,00,000 Assessment year 1994-95 - Rs. 20,00,000 11. As per the statement of the said partner dated 13th August, 1994 (date of search), investment recorded in the books was Rs. 6,42,53,318 as on 31-3-1994 and thereafter till 13th August, 1994, it was Rs. 35,80,328 aggregating to Rs. 6,77,79,946.

12. In view of the above, seized material in the course of search action, the assessments for assessment years 1990-91 to 1993-94 were reopened under section 148 vide notices dated 22-9-1994. The returns were filed in response to such notices.

13. After the search operation, the assessee was advised to change the method of accounting in respect of V.V. Market from project completion method to work-in-progress method. All expenses and income to the extent considered payable and receivable unless stated otherwise were accounted for on mercantile basis. The closing stock, stores, spares, consumables and work-in-progress were valued at cost. The aforesaid facts were clearly mentioned in the audit report under the head "General Remarks" for assessment year 1994-95. On the basis of the changed method of accounting, the assessee declared loss of Rs. 69,36,378 for assessment year 1994-95 in respect of the contract relating to the V.V. Market.

14. The ITO Ward 2(4), Jalgaon, vide his letter dated 8-8-1994 made a reference to the District Valuation Officer (D.V.O.), Bombay for determination of cost of construction of the V.V. Market, Jalgaon, as on 31-3-1994. The D.V.O. sent a notice dated 20-9-1994 to the appellant asking it to produce the relevant documents relating to V.V. Market on or before 30-9-1994. The appellant by its letter dated 23-9-1994 informed the D.V.O. that the owner of the said property was Jalgaon Municipal Council and the required information could be furnished by them. Further the appellant vide its letter dated 24-7-1995 brought to the notice of the D.V.O. that all the documents relating to the investment made in V.V. Market viz., vouchers, bills and books of account for the period upto 31-3-1993, were with the I.T. Department, in view of their seizure under section 132 of the I.T. Act. It was also pointed out in this letter that the documents for the period from 1-4-1993 onwards would be available with the appellant for inspection and the same could be inspected at the time of site inspection. The D.V.O. inspected the property on 11-8-1995. The appellant by its letter dated 18-8-1995 furnished various documents asked by the D.V.O. at the time of inspection of the property. The documents pertaining to the period after 31-3-1993 were verified by the D.V.O. during his inspection of site on 11-8-1995. The D.V.O., later on, submitted his valuation report, valuing the property at 7.78 crores after considering the objections of the assessee.

15. The ACIT Circle 2(2), Jalgaon, thereafter, made a second reference to the D.V.O. for redetermining cost of construction as the said report had been prepared without looking into the seized material. D.V.O. was requested to redetermine the cost of construction after considering the seized material. The D.V.O. submitted his second valuation report valuing the property at Rs. 8.71 crores as against the valuation in the first valuation report at Rs. 7.78 crores.

16. After considering the seized materials, valuation reports and the explanation offered by the assessee, the following findings/additions were recorded/made by the Assessing Officer :- 1. That the assessee had received "on money" and made payments for expenditure incurred outside the books of account. Some other minor defects were also pointed out. Hence, books of account maintained by the assessee were liable to be rejected.

2. As a consequence of the above finding, the trading result declared by the assessee were rejected. In respect to civil contract, he applied flat rate on net profit of 8% on the total contract receipts subject to depreciation.

3. In addition to the above, other income like hire charges, rent, interest, commission etc., were added to the income separately.

4. In respect to the V.V. Market project, he accepted the second valuation report of the D.V.O. and determined the unrecorded investment in the years under consideration as per Annexure 'A' II to the assessment order and the same were added as unexplained investment under section 69.

5. He estimated the income on the sale of shops at V.V. Market at the rate of 12% of the consideration recorded by the assessee. In addition to that, he estimated 'on money' at the rate of 105.78% of the total consideration recorded by the assessee. This percentage was arrived at on the basis of seized material relating to 28 shops.

The sale of shops was considered in the year in which possession of shops was handed over to the customers. However, while making such addition, he allowed set off to the extent of unrecorded investment.

6. He also made addition on account of unexplained cash credit under section 68 in the respective assessment years.

17. On appeal, the CIT(A) allowed partial relief. For the reasons recorded by him in his order, he determined the "on money" at the rate of 45% against 105.78% adopted by the Assessing Officer. Further, he was of the view that 8% rate of profit on the sale of shops at V.V.Market would be reasonable against 12% adopted by the Assessing Officer. The addition on account of unexplained cash credit was also deleted by him for the reasons given in his order. Rest of the findings and additions recorded/made by the Assessing Officer were confirmed by him. Aggrieved by such order, the assessee as well as Revenue are in appeal before the Tribunal.

18. The first issue arising out of the appeals of the assessee relates to the validity of reassessment proceedings under section 148. The ld.counsel for the assessee has not pressed this issue before us.

Accordingly, the same is dismissed.

19. The next issue relates to the rejection of Account Books. The ld.counsel for the assessee submitted before us that though one set of Account Books was maintained, yet the assessee was maintaining different Accounts in respect of V.V. Market project at Jalgaon and in respect of other civil contracts. It was submitted by him that as far as civil contracts are concerned, no defect has been pointed out by the Assessing Officer. Each minute detail in respect of such contracts is recorded. All expenses and receipts are duly vouched. The accounts of the assessee were always accepted by the Assessing Officer in the past.

In this connection, he invited our attention to the order of regular assessment under section 143(3) for assessment year 1992-93 dated 21st January, 1993 to show that books of account were accepted by the Assessing Officer for this year as well as in the past years.

Particular attention was drawn to paras 2 and 3 of the assessment order. In view of these facts, it was argued by him that in the absence of any defects in the books of account vis-a-vis civil contract, the book result could not be rejected by the lower authorities. In this connection, he referred to the following decisions :- 5. Asstt. CIT v. Rahamat Khan Chandan Khan & Party [1995] 83 Taxman 45 (Jp.) 20. Regarding the rejection of account books vis-a-vis the V.V. Market Project, it has been submitted on behalf of the assessee that no incriminating material was found in the course of search to prove the falsity of the entries made by the assessee except to the extent of the "on money" received by it as per the seized material. All the entries are supported by vouchers. There is no material on the record to prove that expenditure claimed by the assessee was bogus. The method of accounting adopted by the assessee was also in accordance with accounting standard approved by the Institute of Chartered Accountants.

According to the ld. counsel for the assessee, the book result cannot be disturbed except to the extent of "on money" found to be received by the assessee on the basis of seized material. In this connection, he also relied on the following decisions :- 21. On the other hand, it has been submitted on behalf of the Revenue that rejection of account books was justified in view of the various defects pointed out by the Assessing Officer and the incriminating material found in the course of search. According to the ld. Senior D.R., once defects are found in the books of accounts, then entire set of accounts is liable to be rejected and therefore, the question of part acceptance does not arise. It is also submitted by him that it is not a case of block assessment where the additions can be made only on the basis of seized material. It is a case where assessments are reopened under section 148 and the Assessing Officer can take into consideration any material whether found in the course of search or not for rejecting the books of account. He drew our attention to paras 14.1 and 14.2 of the assessment order to show the unrecorded payments made by the assessee. It was also stated by him that various expenses incurred by the assessee have not been apportioned between civil contract and V.V. Market Project. He also drew our attention to the statement of Mr. S. D. Golani, senior partner of the assessee-firm to show that assessee was indulging in receiving "on money" over and above the agreed consideration and also to show that assessee had incurred expenditure in construction of the V.V. Market Project outside the books of account. The fact of receiving "on money" has not been disputed by the assessee and the assessee has also disclosed sum of Rs. 75,00,000 towards construction of the project on account of unrecorded expenditure. According to him, all these defects are sufficient to justify the rejection of books of account kept by the assessee.

22. In reply, it has been submitted by the ld. counsel for the assessee and reiterated that there is no defect whatsoever in respect of entries in the account books relating to civil contracts. It was clarified by him that unrecorded payments mentioned in paras 14.1 and 14.2 of the assessment order do not relate to civil contracts and in fact, these payments were made in connection with the construction of V.V. Market.

According to him, these payments have been mentioned by the Assessing Officer on the basis of loose-papers found from the premises of V.V.Market and he drew our attention to such loose papers. He took us through such loose-papers to show that these payments related to V.V.Market and in various loose-papers, the words JMC were written which means Jalgaon Municipal Committee. Therefore, according to him, these payments cannot be considered while deciding the issue of rejection of account books vis-a-vis civil contracts.

23. Rival submissions of the parties as well as the materials produced before us have been considered/perused carefully. The main reason for rejecting the books of accounts vis-a-vis the civil work given by the Assessing Officer was that the assessee had made payments, as mentioned in paras 14.1 and 14.2 of his order, outside the books of accounts.

After perusing the relevant materials, it is not possible to accept the reasoning given by him. The payments mentioned in paras 14.1 and 14.2 of the assessment order were taken from the loose-papers found in the course of search, the copies of which have been enclosed in the paper-book at pages 612 to 624. The perusal of these papers clearly show that such payments were made in connection with the V.V. Market Project and not with reference to any civil works. Page 612 contains the details of payments amounting to Rs. 13.02 lakhs to M/s. Liberty Construction Co., between 21-3-1992 to 12-2-1990 (sic). Narration against various entries "JMC" (Jalgaon Municipal Committee) clearly shows that such payments were made in connection with the V.V. Market project at Jalgaon. It has also not been shown by the Assessing Officer, who was present at the time of hearing, that assessee made any payment to Liberty Construction Co. in connection with any civil work.

Therefore, it is held that such payments were made in connection with V.V. Market project only.

24. Similarly, it is found that other payments mentioned by the Assessing Officer in his order find place in various papers appearing at Sl. 614 to 624 of the paper-book. The perusal of these papers shows that such payments were made by the assessee to M/s. Priti Enterprises of Ullasnagar as is apparent from the rubber stamp and the signature of the proprietor of the said concern on these papers. It is the case of the assessee that this concern did work/supply materials only for V.V.Market project which has not been controverted by the Revenue. The letter of this concern appearing at page 613 also shows that the said concern was working for the V.V. Market project and it had requested the assessee to finance on priority basis so that the job of V.V.Market project be completed on scheduled time. Besides these, it is found that the name of V.V. Market also appears on various pages. In view of these clear materials, it is held that these payments were made by the assessee outside the books of account in connection with V.V.Market project and the same had nothing to do with any other civil work. Therefore, the reason given by the Assessing Officer for rejecting the books of account vis-a-vis civil works does not survive.

25. It is also pertinent to note that books of account of the assessee relating to civil work had been accepted by the Assessing Officer in the past. Reference can be made to the order of the original assessment for assessment year 1992-93 dated 21st January, 1993. Perusal of which shows that no discrepancy was found in the preceding years and the books of accounts were accepted subject to minor adjustment. For the benefit of this order, paras 2 and 3 of the said assessment order are being reproduced :- "2. In response to notices issued under sections 143(2) and 142(1), Shri N. T. Shurpatne, Advocate attended Shri H. R. Shimpi, Accountant of the assessee firm and explained the return. The assessee firm continues to derive income from contracts from Government and semi-Government. Assessee maintains four sets of books of accounts. One set belongs to Head Office and other set is for Bombay Office. Third set is for Poladpur, Dist : Raigad and the last set is for M/s. T. Deepchand & Sons, Bombay. The books of accounts are closed, adjusted and audited. The assessee maintains all vouchers for expenses.

3. During the year under consideration, the total work done is shown at Rs. 3,20,61,441. As the books of accounts are closed, adjusted and audited, the book results are accepted. The past records reveals that thorough verification was carried out in this case and no discrepancy was noticed. This year also there is no major flow noticed in the books of accounts." 26. Another reasoning given by the Assessing Officer was that assessee had not apportioned the expenditures like interest between civil works and V.V. Market project. In our opinion, this reasoning is not relevant for rejecting the books of accounts. There is no dispute that such expenditures are duly accounted for in the books of accounts and were incurred for the purpose of business. In either events, such expenditures are to be allowed under section 37 or 36. Accordingly, this reasoning of the Assessing Officer is also rejected.

27. In view of the above discussion, in our opinion, the action of the Assessing Officer for rejecting the books of account of the assessee vis-a-vis civil works cannot be upheld. Accordingly, it is held that account books vis-a-vis civil works were correct and could not be rejected by the Assessing Officer. Consequently, the orders of CIT(A) confirming the finding of the Assessing Officer in this regard are set aside to this extent.

28. However, in our opinion, the Assessing Officer was justified in rejecting the account books vis-a-vis the V.V. Market Project. It is found from the statement of the senior partner of the firm under section 132(4) that the assessee had made various payments outside the books of account pertaining to V.V. Market project. He has admitted that such payments till the date of search were to the extent of Rs. 75,00,000 approximately, details of which are given in para 8 of this order. Various loose-papers found in the course of search also show that unaccounted payments were made to M/s. Liberty Construction Co., and Priti Enterprises in connection with this project. Not only this, the seized materials also show that assessee had been receiving "on money" over and above the agreed consideration in respect of shops sold by the assessee. This fact, though disputed in the grounds of appeal, has been accepted on behalf of the assessee before us. These facts, in our opinion, are sufficient to reject the books of accounts vis-a-vis the V.V. Market project. Accordingly, the orders of CIT(A) confirming the action of Assessing Officer in this regard are upheld.29. Having accepted the books of account vis-a-vis the civil works, the question of estimating the profits from such civil works does not arise. Consequently, the book results shown by the assessee in respect of civil works are hereby accepted. The orders of CIT(A) for all the years sustaining the estimate of profit made by the Assessing Officer in this regard are set aside. Consequently, the additions sustained by him in this regard for all the years are hereby deleted.

30. Before parting with this issue, we would like to refer the contention of the assessee that Assessing Officer was not justified in assessing the income by way of interest, commission, hire charges etc., under the head "income from other sources". In our opinion, this plea of the assessee is mis-conceived. The perusal of the assessment orders passed by the Assessing Officer does not show that such income was assessed under the head "income from other sources". Except for assessment year 1990-91, the Assessing Officer has not referred even to the words "income from other sources". He has simply stated "other income". The entire computation is only under one head and depreciation has been allowed after assessing all business income from civil works.

He has only segregated various business income from civil works. In assessment year 1990-91, he has referred to the words "income from other sources", but there is nothing to show that he has assessed the same under the residuary head. There is a distinction between the assessment of a particular income under residuary head and reference of such income as "other income" or "income from other sources" while computing the business income inasmuch as business income itself may be from various sources. Therefore, the contention of the ld. counsel for the assessee in this regard is held to be mis-conceived. Even otherwise, it would make no difference to the assessee whether it is assessed as business income or as income under the residuary head once the book results in respect of civil works are accepted.

31. Let us now take up the matter relating to V.V. Market project.

Having rejected the books of account in respect of this project, the moot question is how to determine the profits from this project. The receipts and expenditures are the two main components which are relevant for determining the profits of any venture. Both these components are in dispute before us. Therefore, first we take up the issue relating to "on money" received by the assessee.

32. As stated earlier, certain incriminating materials were found in the course of search which revealed the fact of receiving "on money" over and above the agreed price in respect of shops sold by it.

Annexure "E" to the assessment order contains the details of shops and the exact amount of "on money" received in respect of these shops. This Annexure has been prepared by the Assessing Officer on the basis of seized material which contains the details of 41 shops. Perusal of this list shows that no "on money" was received in respect of 5 shops and agreements in respect of 8 shops were terminated. In respect of balance 28 shops, the excess money were charged by the assessee. Annexure "H" prepared by the Assessing Officer shows the actual amount of sale consideration, sale consideration recorded in the books and the quantum of "on money" received in respect of the 28 shops. Total consideration recorded in the books of account in respect of above shops amounted to Rs. 37,12,600 while the actual amount received was Rs. 76,40,075. Thus, the total "on money" in respect of these shops amounted to Rs. 39,27,475. Accordingly, the Assessing Officer worked out the percentage of "on money" i.e. 105.78% of the amount recorded in the books of accounts. Annexures "E 3 & 4" to the assessment order show the details of "on money" received in respect of 201 shops upto 25th March, 1990.

The gist in respect of these shops shows that assessee had received excess amount of Rs. 53,09,500 upto 25th March, 1990 against recorded consideration of Rs. 50,76,500 giving rate of "on money" at 104.59%. On the basis of these details, the Assessing Officer was of the view that assessee must have received "on money" in respect of all the shops sold by it. The assessee disputed the receipt of "on money" before the Assessing Officer which was rejected in view of the above materials and the statement of the senior partner Mr. S. D. Golani, under section 132(4) who in answer to question No. 8 deposed that the sum of Rs. 75,00,000 spent on the construction of V.V. Market outside the books were gene-rated from the sale/booking of the shops. In view of these clinching materials, the Assessing Officer following the decision of the Supreme Court in the case of CST v. H. M. Esufali H. M. Abdulali [1973] 90 ITR 271 estimated the quantum of "on money" in respect of the all 268 shops sold during the years under consideration by applying the rate of "on money" at 105.78% of the agreed consideration in the following manner :- -----------------------------------------------------------------------Asst.

No. of Recorded sale On money year.shops consideration-----------------------------------------------------------------------1991-92 69 8603513 91007961992-93 72 7749853 81977941993-94 72 9887000 104584681994-95 55 5334500 6506528 33. The amount of "on money" as estimated above was added to the income of the assessee from this Project.

34. The above issue was agitated before the CIT(A) by raising three submissions - firstly, that no "on money" was received by the assessee, secondly that the "on money", if any, was too excessive on the facts of the case and thirdly, the entire amount of "on money" could not be considered as income of the assessee since unaccounted expenditures are to be incurred by builder out of such "on money". Hence, only some rate of profit should be adopted. The assessee relied on the decision of the Tribunal in the case of Mrs. Mehroo N. Irani, dated 26th February, 1991 for adopting 5% rate of profit. The CIT (A) rejected the first contention of the assessee in view of the various seized materials and statement of the senior partner under section 132(4). However, he reduced the quantum of "on money" to 45% against 105.78% determined by the Assessing Officer. The third contention of the assessee for adopting 5% rate of Net Profit was also rejected keeping in view the seized materials which itself showed that assessee had been charging "on money" between 30 to 40% in various cases. The reasons given by the CIT (A) for reducing the percentage of "on money" were : 2. Number of other shopping complexes came up in the same area where shops were sold at a lesser value.

3. Documents registered with the Registrar showed lesser sale consideration.

4. No independent enquiry was made by Assessing Officer, but restricted himself to the seized materials.

5. Only 28 shops were selected for estimating "on money" for all the shops.

6. Uniform rate was applied for all the shops irrespective of location.

7. Such higher rate of "on money" could be in the Metro cities, but not in the smaller city like Jalgaon.

35. Aggrieved by such orders of the CIT(A), both the assessee as well as the Revenue are in appeal before the Tribunal.

36. The ld. counsel for the assessee initially contested the finding of the lower authorities that "on money" was received in respect of sale of shops as per the seized material, but later on gave up this issue and admitted before us the fact of receiving "on money" on the sale shop as per the seized material. However, it was contended by him that receipt of "on money" should be restricted to the amount actually received by it as per the seized material inasmuch as there was no scope of estimating in the case of search. According to him, whatever "on money" was received was reflected in the seized material.

Alternatively, it was submitted by him that "on money" as per the seized materials related to 201 shops only and therefore, there was no scope to assume the receipt of "on money" in respect of balance 67 shops. According to him, 268 shops were sold between assessment year 1990-91 to assessment year 1994-95 and Assessing Officer has wrongly and illegally estimated the "on money" in respect of all the shops despite the fact that "on money" was found to have been received in respect of 201 shops only. It was also argued by him that uniform rate of "on money" could not be applied to all the shops. According to him, there is always possibility of not receiving "on money" in certain cases keeping in view the social and political circumstances in which the assessee has to live. In some cases, the assessee has shown full consideration in the books of account.

37. On the other hand, the ld. Senior D.R. has seriously opposed the contentions raised by the ld. Counsel for the assessee. According to him that once the fact of receiving "on money" is admitted, the Assessing Officer is legally entitled to reject the book results and estimate the "on money" in respect of all the shops. In this connection, he relied on the Supreme Court judgments in the case of H.M. Esufali H. M. Abdulali (supra), in the case of Raguwar Mandal Harihar Mandal 8 STC 770 and in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC). The only exception to this proposition is that estimate must be rational and not arbitrary, though some guess-work is bound to be there. He took us through the seized material to show that the estimate made by the Assessing Officer was rational since it was based on actual "on money" received by the assessee. Therefore, it cannot be said to be arbitrary estimate.

However, it was clarified by him that "on money" has not been estimated by the Assessing Officer in respect of shops which were given to the nominees of JMC as there was no question of charging "on money" in such cases.

38. In respect of the appeal of Revenue on this issue, he vehemently assailed the order of CIT (A) reducing the rate of "on money" to 45% by contending that there was no basis with the CIT (A) for adopting such rate of "on money". On the contrary, the rate of 105.78% applied by the Assessing Officer is based on actual calculation of "on money".

According to him that once the actual figures of "on money" are available, then there is no question of considering the circumstantial materials as done by the CIT (A). The circumstantial material can be taken into consideration only when direct material is not available.

Accordingly, it was prayed by him that order of the CIT (A) in this regard be set aside and order of the Assessing Officer be restored.

39. In reply, the ld. counsel for the assessee has supported the order of CIT (A) in view of the factors taken into consideration by CIT (A).

According to him, there was loss of Rs. 69 lakhs in this project upto 31-3-1994 and net loss of Rs. 2.91 crores by the completion of the project even after considering the "on money" received by the assessee.

Therefore, the question of assessing the assessee on positive income does not arise. Even the rate of "on money" applied by him is too excessive and only reasonable rate of G.P. should be applied as contended by him in respect of his own appeal.

40. Rival submissions of the parties and the materials placed before us have been considered carefully. There is no dispute before us of the fact that "on money" was received by the assessee in respect of shops sold by it. Annexure 'E' clearly shows the quantum of excess money received by the assessee in respect of 28 shops and the assessee also has no objection if the same is taken into consideration for determining the profits from this project. However, it is found that there is a duplicacy in respect of shop No. 9. So Annexure 'H' would be restricted to 27 shops. Annexure 'E4' is the complete list of 201 shops in respect of which 'on money' was received by the assessee upto 25th March, 1990. From the perusal of Annexures 'E' & 'E4', it is clear that above 27 shops mentioned in Annexure 'E' and Annexure 'H' are also reflected in Annexure 'E4'. The only difference is that Annexure 'E' reflects the amounts received upto 17-12-1990 while Annexure 'E4' reflects amounts received upto 25th March, 1990. But, this would not improve the case of the assessee because it has been established that assessee received "on money" in respect of 201 shops which have finally been sold over a period of four years ending 31-3-1994. On the basis of these facts, in our view, the Assessing Officer was legally justified in assuming that assessee must have been also received the "on money" in respect of the balance 67 shops sold during these years in view of the various judgments of Supreme Court relied on by the ld. Senior D.R.In this connection, the reliance can also be placed on the decision of the Hon'ble President, of the Tribunal as Third Member in the case of Overseas Chinese Cuisine v. Asstt. CIT[1996] 56 ITD 67 (Bom.) wherein it has been held that once a fact has been proved to be in existence, the presumption can be raised in respect of other transactions.

Therefore, the contention of the ld. Sr. D.R. that Assessing Officer was justified in estimating the "on money" in respect of all the shops sold by it during these years is accepted.

41. But, that is not the end of the matter. Further, it is to be decided what should be the percentage of "on money" vis-a-vis the recorded price. Before deciding the correctness of the percentage applied by the Assessing Officer, let us consider the order of CIT (A) fixing the rate of "on money" at 45% of the recorded price. In our opinion, CIT (A) was not justified in adopting the rate of 45% firstly because there is no basis for adopting such rate. Secondly, there is no comparable case and thirdly, the circumstantial factors referred to and taken into consideration by him were not relevant when actual fact of "on money" was established from the seized material. Once it was established on the basis of seized material that assessee received "on money" at 100% or above of the recorded price, there was no scope for reducing the rate of "on money" drastically. The senior D.R., in our opinion, was justified in contending that circumstantial evidence could be taken into consideration only in the absence of direct evidence.

Annexure 'H' prepared by Assessing Officer on the basis of seized material and account books maintained by the assessee clearly shows that in respect of 27 shops the "on money" charged by the assessee in most of the cases was more than 100%. Only in some cases, it was slightly less than 100%. For example, Rs. 1,27,000 against recorded price of Rs. 1,31,000 in respect of shop No. 84, Rs. 1,25,500 against Rs. 1,33,500 for shop No. 87 and Rs. 1,21,500 against Rs. 1,33,500 in respect of shop No. 88. It is only in respect of one shop i.e. shop No.1 that "on money" was only Rs. 88,620 against the recorded price of Rs. 2,75,000. But, the overall calculations made by the Assessing Officer shows "on money" at 105.78% of the recorded price. The perusal of the other details of 201 shops as per Annexure 'E4' also shows that in most of the cases, assessee was receiving "on money" at the rate of 100% of the recorded price or more than that. Therefore, in our opinion, there was no reason with the CIT (A) to reduce the rate of "on money" drastically low at 45%. The factors taken into consideration by the CIT (A), in our opinion, were not relevant keeping in view the seized material. Accordingly, the finding of the CIT (A) in this regard is therefore vacated.

42. Now the last question on this aspect is what should be the estimate of quantum of the "on money". As far as 27 shops are concerned, the exact figure is available as per Annexure 'H'. So, there is no question of interfering with such figure. However, in respect of balance 241 shops, some rational estimate is required to be made. The Assessing Officer has applied the average rate of 105.78% uniformally in respect of all the shops. But, in our opinion, some modification is required keeping in view the facts on record. The perusal of Annexure 'E4' shows that in respect of shops at first floor, the assessee had charged "on money" at 100% of the recorded price. In all cases, except in one case i.e. shop No. 91 where the "on money" was Rs. 15,000 against recorded price of Rs. 20,000. In view of these facts, it would be reasonable in our view to estimate the "on money" at 100% in respect of the shops at first floor. In respect of shops at ground floor, it appears from the perusal of the Annexure 'E4' that there are certain anomalies. For example, in respect of various shops, the amount as per recorded price is written, but there are no details about actual amount received by the assessee. Hence, column of 'actual amount' and "excess money" are left blank. However, in totalling of all the three columns, such amounts are not excluded. In this connection, reference may be made to shops at sl. Nos. 42, 43, 46 to 48, 53, 80, 81, 113, 140, 144, 145, 149 & 150. Besides this, there are certain shops against which recorded consideration is not mentioned and the entire amount received is considered as "on money". For example, at sl. No. 79, actual amount received against shop No. 179 is shown at Rs. 50,000 while the recorded price is shown at 'Nil'. So, the entire amount is considered as "on money" which cannot be the factual position at any cost. Similarly, reference can be made for other shops at sl. Nos. 87, 93, 108, 109 and 111. However, it further appears that in most of the cases, the "on money" has shown at 100% of the recorded price. In few cases, it is either more or less of the recorded price. In respect of shop Nos. 218 and 320, there is no "on money". Even after excluding these anomalies, we find that there is not much difference in rate of "on money" than what has been applied by the Assessing Officer. Therefore, in our view, there is no reason to disturb the estimate of the Assessing Officer in respect of shops at ground floor.

1. That Assessing Officer was justified in estimating the "on money" in respect of all the 268 shops sold during years under consideration.

2. That the CIT (A) was not justified in determining the rate of "on money" at 45% of the recorded price.

3. That Assessing Officer was justified in assessing the "on money" in respect of 27 shops as per Annexure 'H'.

4. That Assessing Officer was justified in applying the rate of "on money" at 105.78% in respect of shops at ground floor.

5. That Assessing Officer was not justified in applying the rate of 105.78% in respect of shops at first floor. For the reasons given by us, Assessing Officer is directed to apply the rate of 100% of the recorded price in respect of shops at first floor.

6. That no estimate can be made in respect of shops/stalls sold to the nominees of Jalgaon Municipal Committee.

7. The total "on money" computed in the above manner shall be added to the recorded sale price for the purpose of determining the profits from this project.

44. Now let us take up the other component of the profit i.e. the cost of the project and the additions made under section 69C on account of unexplained expenditure in the construction of this project. The survey under section 133A was conducted at the premises of the assessee in the month of June, 1994 for TDS purposes only. Later on, search and seizure action was carried out on 11-8-1994 at the premises of the assessee. In the meanwhile, the ITO, Ward 2(4), Jalgaon had referred the matter of valuation to the District Valuation Officer (hereafter called DVO) vide his letter dated 8-8-1994. In response to the same, the DVO valued the property at Rs. 777.78 lakhs as on the date of search vide valuation report No. 92 : 1587. Subsequently, another request was made by the Assessing Officer to DVO to revise the valuation report in the light of seized material since such materials were not considered by the DVO while preparing the first valuation report. Thereafter, the DVO after considering the seized materials revised the report (revised report No.92 : 1646) and re-determined the cost of construction till date of search at Rs. 871.78 lakhs. The second valuation report was accepted by the Assessing Officer. Accordingly, he determined the cost of construction year wise on the basis of percentage of work done by the assessee and also determined the unaccounted expenditure in the construction of the project as per the details given in Annexure II to the assessment order. Consequently, the addition under section 69C on account of unexplained expenditure was made as under : ----------------------------------------------------------------------Assessment Unexplained year----------------------------------------------------------------------1989-90 Rs. 36,85,976 1990-91 Rs. 27,29,8821991-92 Rs. 18,25,496 1992-93 Rs. 23,72,458 45. At this stage, it is clarified that the Assessing Officer deducted the aforesaid amounts from the "on money" assessed by him pertaining to assessment years 1991-92 to 1994-95 so that double addition was not made. However, in respect of assessment year 1990-91, no such set off was allowed since no "on money" was assessed by him.

46. The ld. counsel for the assessee has seriously assailed the validity of the reference made by the Assessing Officer to the DVO by contending that the provisions of section 55A could not be invoked by the Assessing Officer inasmuch as the fair market value of a capital asset was not required to be determined in the present case. He drew our attention to the letter of DVO dated 20th September, 1994 addressed to the assessee to show that reference was made under section 55A of the income-tax Act though in the body of the valuation report reference is made to the provisions of section 131(1)(d). It was further contended by him that even reference under section 131(1)(d) could not have been made by the Assessing Officer since no proceeding was pending on the date of such reference. In this connection, he relied on the judgment of the Bombay High Court in the case of Jamnadas Madhavji & Co. v. J. B. Panchal, ITO [1986] 162 ITR 331/27 Taxman 157 and of the Calcutta High Court in the case of Dwijendra Lal Brahmachari v. New Central Jute Mills Co. Ltd. [1978] 112 ITR 568. It was further submitted by him that once the original reference is invalid, then revision of such report would also be invalid. According to him, all the documents relating to investment in this project upto 31-3-1993 were available with the Income-tax Department since they were seized in the course of search. Whatever the material was available with the assessee was duly shown to the DVO. Thus, there was no fresh material with the Assessing Officer for asking the DVO to make fresh report.

Further, the assessee cannot be held responsible for the relevant material in the possession of the Assessing Officer was not disclosed to DVO. In support of his submissions, the ld. counsel for the assessee also relied on the decision of the Allahabad High Court in the case of M. C. Khunnah v. Union of India [1979] 118 ITR 414/[1980] 3 Taxman 288.

In view of these submissions, it was prayed by him that these reports should be ignored and the unaccounted investment should be restricted to the amount disclosed by the assessee in the course of search.

47. On the other hand, the ld. Senior D.R. has supported the orders of lower authorities. He drew our attention to the valuation reports to point out that DVO was never asked to determine the fair market value of the property. The report also shows that it was only the cost of construction which was determined by the DVO. The reference to section 55A, if any, in the letter of Assessing Officer cannot invalidate such report, if otherwise the Assessing Officer can make valid reference. It was further contended by him that for the purpose of determining the cost of construction, no power was required to make such a reference.

For the purpose of making assessment, the Assessing Officer has inherent power to collect and gather the material from any source and use the same against the assessee after confronting the same to the assessee. Even assuming that no proceeding was pending on the date of first reference, the assessment proceedings were pending at the time when the second reference was made. Therefore, the validity of the second valuation report cannot be challenged. Therefore, the Assessing Officer was justified in law in determining the cost of construction of the project in accordance with the second valuation report.

48. Rival submissions of the parties as well as both the valuation reports have been considered carefully. It is not necessary for us to decide the validity of the reference made by the Assessing Officer and DVO in the present case, because in our opinion, such valuation reports can be considered as evidence even assuming that reference made by the Assessing Officer was not in accordance with the law. Somewhat similar question arose before the constitutional Bench of the Hon'ble Supreme Court in the case of Pooran Mal v. Director of Inspection 49. The question before the Hon'ble Court was whether the materials seized in the course of search which is declared illegal can be used as an evidence against the assessee. The answer given by the court was in affirmative. in the head-note of the report at page 506, the following observations of their Lordships are reproduced as under :- "In India, as in England, where the test of admissibility of evidence lies in relevancy, unless there is an express or necessarily implied prohibition in the Constitution or other law, evidence obtained as a result of illegal search or seizure is not liable to be shut out. Even though a search and seizure may be in contravention of section 132 of the Income-tax Act, 1961, still the material obtained thereby is liable to be used subject to law before the income-tax authorities against the person from whose custody it is seized and, therefore, no writ of prohibition in restraint of such use can be granted." 49. This decision was again followed by the Supreme Court in the case of Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 at page 175. In this case, it was further observed that the court or the authority before which such material or evidence seized during the search shown to be illegal is placed has to be cautious and circumspect in dealing with such evidence or material. The ratio of these two decisions in our opinion can be applied to the present case.

50. In the present case, there is no dispute about the fact that unaccounted investment in the construction of this project was made by the assessee as is apparent from the statement of the senior partner Shri S. D. Golani under section 132(4) wherein, he has disclosed the unaccounted investment in the construction of the project to the extent of Rs. 75,00,000. In view of this clear evidence, the books of account maintained by the assessee could not be accepted by the Assessing Officer and therefore rightly rejected by him. Accordingly, it was his duty to determine the cost of construction incurred by the assessee.

Since he was not an expert on this point, he could gather the material in this regard. The opinion of the District Valuation Officer, who is an expert in this line, can be considered as an evidence for determining the cost of construction. There are two valuation reports on the record. According to the Assessing Officer, the first valuation report was prepared without reference to the seized material determining the cost at Rs. 777.78 lakhs. But, the senior partner of the assessee in his statement had stated that the total cost of construction upto the date of search was around Rs. 8.25 crores.

Therefore, the cost as per the first report was much below the admitted cost, could not be accepted by the Assessing Officer. Probably, that may be the reason which might have prompted him to ask the DVO to revise the valuation in accordance with the seized material which was not taken into consideration while preparing the first report. The cost of construction as per the second report was determined at Rs. 871.78 lakhs which was nearer to the estimate disclosed by the assessee in his statement under section 132(4). The ld. counsel for the assessee before us could not point out any defect in the figures relating to the cost of the material, measurement of the area etc., adopted by the DVO. The only stand taken by him was that DVO had not inspected the premises before making the second report. But, perusal of the second report shows that DVO had inspected the premises again before making the second report. Since the measurement had already been taken by him at the time of first inspection, there was no need to take the measurement again. In the absence of any defect in such valuation report, in our opinion, the Assessing Officer was justified in relying on the second valuation report while determining the cost of construction of this project.

51. At this stage, it is necessary to appoint out that two mistakes apparent from the record were noticed which were committed by the Assessing Officer. The first mistake relates to quantification of unaccounted expenditure in the construction of V.V. Market project. The Assessing Officer has quantified such expenditure at Rs. 1,63,03,573 as per the details mentioned in the Annexure 'A II' to the assessment order. The perusal of these details shows that Assessing Officer has allowed the credit of the sum of Rs. 75,00,000 by mistake which was disclosed by the assessee on account of unaccounted investment made by the assessee in that project. The working of the Assessing Officer was as under :- date of search as per books of Account 6,33,74,395 Add amount disclosed by the assessee 75,00,000 52. Infact, he should have deducted the sum of Rs. 6,33,74,395 from the sum of Rs. 8,71,77,968 and determined the total unaccounted expenditure at Rs. 2,38,03,573. The revenue has also moved an additional ground in this regard.

53. The second mistake committed by the Assessing Officer relates to non-consideration of sale proceeds of the shops and vegetable stalls sold by the assessee to the nominees of JMC amounting to Rs. 59,83,625.

When these mistakes were confronted to the ld. counsel for the assessee, he did not object if these figures are taken into consideration while determining the profits from this project. In this connection, reference can be made to the letter of the assessee dated 16th August, 1999 filed after the completion of hearing.

54. In view of the above discussion, the unrecorded investment in the construction of project yearwise, on the basis of the information in Annexure 'A II', is determined as under :- ------------------------------------------------------------------------ A.Y. Expenses % of work Cost ofUnaccounted as per done constructioninvestment Books of divided on------------------------------------------------------------------------1989-90 47,60,382 6.72 58,58,359 10,98,0271990-91 1,60,24,962 22.61 1,97,10,938 36,85,9761991-92 1,08,63,710 16.74 1,45,93,592 37,29,8821992-93 64,64,590 11.23 97,90,086 33,25,4961993-94 93,29,371 14.57 1,27,01,829 33,72,4581994-95 1,11,84,748 18.60 1,62,15,103 50,30,3551995-96 47,46,682 9.53 83,08,061 35,61,379 55. The above sum shall be taken into consideration while determining the cost of the project. Similarly, the sum of Rs. 59,83,625 shall be considered while determining the unaccounted receipts of "on money".

56. Having determined the unaccounted expenditure the question for consideration is whether the Assessing Officer was justified in making addition under section 69C for the years under consideration. After considering the relevant facts of the case, it is our view that no addition can be made under section 69C. There is no dispute about the fact that assessee received 'on money' at the time of booking/sale of shops. The senior partner of the assessee had stated in his statement under section 132(4) that unaccounted investment was made in the construction of the project out of the money generated on the sale of shops by way of 'on money'. Therefore, both the amounts of 'on money' as well as unexplained expenditure cannot be brought to tax. If the unaccounted expenditure was incurred out of 'on money' received by the assessee, then question of making any addition under section 69C does not arise because the source of expenditure is fully explained. In such case, it is only the 'on money' which can be considered for the purpose of taxation. It is pertinent to note that Assessing Officer himself had given set off while determining the taxable amount of 'on money'. But, this approach, in our opinion, was erroneous. Once the 'on money' is considered as revenue receipt, then any expenditure out of such receipt cannot be treated as unexplained expenditure. There cannot be double addition in respect of the same amount. However, the Assessing Officer has observed that expenditure of Rs. 36,85,976 remained unexplained in the absence of any 'on money' received by the assessee in assessment year 1990-91. But, that is not the correct factual position. The perusal of the seized material (Annexure 'E' and 'E4') clearly shows that assessee had received 'on money' upto 25th March, 1990 amounting to Rs. 53,09,500 which is much more than the unaccounted expenditure for this year. Therefore, even such addition cannot be made for assessment year 1990-91. In view of the above discussion, the addition made by the Assessing Officer for assessment years 1990-91 to 1994-95 and sustained by the CIT(A) are hereby deleted. Consequently, full amount of 'on money' which may be finally determined in accordance with our directions in para 33 would be considered as 'on money' on revenue account and no set off shall be allowed as allowed by the Assessing Officer.

57. Having considered the aspects of unaccounted 'on money' and expenditure, the real issue now is how to determine the profits from this project keeping in view the peculiar features of this project.

This aspect has been argued at length by the ld. counsel for the assessee and the crux of the arguments is that liability incurred by the assessee in respect of the portion of the building and for the amenities to be given free of cost to JMC should be set off while computing the taxable profit irrespective of the method which may be adopted by the Tribunal. According to him, the method adopted by the Assessing Officer is irrational and without any basis. In support of his contention, he has heavily relied on the decision of the Supreme Court in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1. On the other hand, the ld. senior D.R. has fully supported the order of CIT(A) determining 8% of profit. According to him, once the books of account are rejected, then some guess-work is bound to be there. The rate of 8% as adopted by the CIT(A) is quite reasonable and therefore, should be upheld.58. After giving our deep thoughts to this aspect of the matter, it is not possible for us to uphold the order of CIT(A), determining the rate of profit at 8%. The books of account have already been rejected by us.

The provisions of section 145(2) provides that where accounts are rejected, the assessment is to be made in the manner provided in section 144 which in turn provides assessment to the best of judgment.

It is the settled law that even the best judgment of assessment must be rational and cannot be arbitrary though some guess-work may be involved. In this connection, reference may be made to the decisions of Hon'ble Supreme Court in the case of Raghubar Mandal Harihar Mandal (supra) and in the case of Dhakeswari Cotton Mills Ltd. (supra). In the present case, the Assessing Officer has simply applied 12% rate of profit which has been reduced to 8% by CIT(A). Neither the Assessing Officer nor the CIT(A) has given any basis for such rate of profit adopted by them. Further, neither of them has taken into consideration the contractual obligations of the assessee to give major portion of the building to JMC free of cost alongwith various amenities and further to give 472 vegetable stalls in basement at concessional rate of Rs. 3,000 per stall and further 74 shops in basement and 39 shops at the first floor at the concessional rate of Rs. 40,000 each. In our opinion, the true profits from this project cannot be determined unless such liabilities are taken into account. In view of the settled position, the profits must be understood in the commercial sense. If so considered, the true profits cannot be arrived at unless set off is given for the contractual obligation undertaken by the assessee. This view is well settled by the decision of the Hon'ble Supreme Court in the case of Calcutta Co. Ltd. (supra). The relevant observations appearing at page 8 of the report are being reproduced hereunder for the benefit of this order : "The appellant here is being assessed in respect of the profits and gains of its business and the profits and gains of the business cannot be determined unless and until the expenses or the obligations which have been incurred are set off against the receipts. The expression "profits and gains" has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted therefrom - whether the expenditure is actually incurred or the liability in respect thereof has accrued, even though it may have to be discharged at some future date." 59. In view of the above discussion, no basis can be said to be rational unless it takes care of the contractual obligations undertaken by the assessee. Therefore, keeping in view the peculiar facts of the case, the best method would be to spread the total cost of the project over the saleable area of the shops/flats/stalls etc., so as to determine the cost per sq. ft. of the saleable area and then ascertain the cost of the total area sold during each year by multiplying the rate per sq. ft. saleable area to the area sold by the assessee in each year. Once this exercise is done, then the same may be deducted from the total receipts of the each year as the case may be (including the 'on money' charged by the assessee). The difference so arrived at would be assessable profits/losses of each year. This may be illustrated by an example. Suppose the total cost of project is Rs. 1,00,000 in respect of total area to be constructed of 1000 sq. fts. out of which saleable area is 400 sq. fts. The sum of Rs. 1,00,000 would be spread over 400 sq. fts. which would give cost of construction at Rs. 250 per sq. ft. of the saleable area. If 100 sq. fts. of area is sold by the assessee in a year for consideration of Rs. 15,000 in addition to the 'on money' of Rs. 15,000, then the total receipts would be Rs. 30,000 in that year against the cost of saleable area of Rs. 25,000 (250 X 100). Thus, the profit for this year chargeable to tax would be Rs. 5000.

60. In view of the above discussion, the orders of CIT(A) are set aside on this issue and the Assessing Officer is directed to re-compute the taxable profit/loss from this project i.e. V.V. Market Project in the following manner :- cost per saleable sq. ft. shall be determined by him. 4th Step To determine the cost of construction yearwise in respect sold to the nominees of JMC at concessional rate amounting to Rs. 59,83,625 as stated by the assessee at page 196 of the paper-book. The Assessing Officer would take such proceeds into consideration while computing the total receipts of each year. He would treat the sale of such stalls and shops in the year in which possession was given by the assessee. 7th Step The sale consideration so computed as per 5th and 6th steps would be totalled for each year and the same shall be treated as total revenue receipts for computing the profits of each year chargeable to tax. 8th Step The difference between the two amounts arrived at as per step No. 4 and step No. 7 would be assessable profits/ losses of the concerned year. In case of loss in any year, the Assessing Officer is directed to allow set off/carry forward and set off in accordance with the provisions of Chapter VI.61. The amount of profit or loss computed in accordance with the above formula shall be taxable in respect of each year.

62. The next issue relates to the addition made by Assessing Officer on account of cash credits under section 68 in respect of assessment years 1990-91, 1991-92 and 1993-94. The cash credits relating to assessment years 1990-91 and 1991-92 represented the amount of booking deposit in respect of shop/flat booked in the name of family members of the partners of the assessee firm. Cash credits relating to assessment year 1993-94 represent the loans received by various parties. Firstly, we deal with the cash credits pertaining to assessment years 1990-91 and 1991-92. During the course of assessment proceedings, it was noticed by the Assessing Officer that certain shops at the around floor in the V.V. Market Project were booked in the name of various family members of the partners of the assessee firm, details of which is given at page 24 of the assessment order. When asked to explain the deposit amount for such booking, the assessee furnished confirmatory letters as well as the statement of accounts in respect of 13 family members out of 17 members. Such explanation was accepted by the Assessing Officer.

However, according to the Assessing Officer neither any explanation nor confirmatory letters were produced in respect of the following deposits : 63. In addition to these, it was also found by him that there was unexplained difference of Rs. 1,000, 5,000 and 5,000 in the case of Kishore Golani, Dhanwanti and Meera Shankarlal respectively.

Accordingly, the addition of sum of Rs. 11,000 was also added as unexplained deposit. Thus, the total addition made by Assessing Officer in respect of assessment year 1990-91 was Rs. 1,88,500 under section 68. Similarly in respect of 1991-92, the Assessing Officer made addition of Rs. 4,37,500 on account of unexplained booking deposits in the names of 13 persons who were relatives/family members of the partners of the assessee-firm since no proof was adduced by the assessee.

64. The matter was carried before the CIT(A). In the course of the appellate proceedings, it was found by the CIT(A) that assessee had furnished relevant documentary evidence on 26th March, 1997 before the Assessing Officer. It was also noticed by him that assessment was completed on the next day and therefore, there was every possibility that Assessing Officer could not verify these details and blindly added these amounts as unexplained deposits. The CIT(A) gave opportunity to the Assessing Officer to verify the facts such as genuineness and credibility of the parties. But, no enquiry was made by the Assessing Officer despite such opportunity being given to him. Therefore, CIT(A) himself examined the material on the record and found that the family members of the partners of the assessee firm were assessed to income-tax at Bombay, the deposits were made out of their capital accounts and were duly reflected in their statement of accounts filed with the return. The confirmatory letters were also filed in respect of all such creditors. In view of these facts, the CIT(A) deleted the addition of Rs. 1,77,500 for assessment year 1990-91 and Rs. 4,37,500 for assessment year 1991-92. The addition of Rs. 11,000 for assessment year 1990-91 was confirmed.

65. The revenue has challenged the deletion of Rs. 1,32,500 only for assessment year 1990-91 in respect of booking deposits in the names of Vasu Brijlani, Vimla Brijlani and Sapna Punjabi and Rs. 2,15,000 for assessment year 1991-92 in respect of the above three persons. The ld.senior D.R. has simply relied on the order of Assessing Officer and further submitted that these persons were not assessed to income-tax and the CIT(A) has merely deleted the addition on the ground that repayments were recorded in the books of accounts ignoring the fact that the deposit as well as repayments were made in cash. On the other hand, the ld. counsel for the assessee has supported the order of CIT(A).

66. After hearing both the parties, we do not find any merit in the appeal of the Revenue. The CIT(A) has found that booking deposits were made by these parties out of their capital accounts. It was also found by him that such bookings were cancelled and the amounts were returned by the assessee on account of cancellation. Besides this, these parties had confirmed the receipt of the refund of such amounts. It is important to note that CIT(A) has recorded a finding that the amounts refunded by the assessee to Vasu Brijlani and Vimla Brijlani appeared in the books of account seized during the course of search. In view of these material on the record, we do not find any reason to interfere with the orders of CIT(A). As far as Sapna Punjabi is concerned, she was assessed to income-tax at Bombay as found by the CIT(A). All the details were filed before the Assessing Officer. The amount of Rs. 37,500 upto assessment year 1990-91 were duly shown by her in the income-tax return and such amount was paid out of her capital account.

Similarly, the balance amount of Rs. 50,000 was found to have been paid out of her capital account, which was also shown in her return of income. Therefore, in our opinion, the CIT(A) was justified in accepting such cash credits. Accordingly, we uphold the orders of CIT(A) deleting the cash credits in the name of Sapna Punjabi, Vasu Brijlani and Vimla Brijlani pertaining to assessment year 1990-91 and assessment year 1991-92.

67. Now we deal with the cash credits pertaining to assessment year 1993-94. In the course of the assessment proceedings, the Assessing Officer made an addition of Rs. 9,20,000 on account of unexplained cash credits being loans in the name of various parties, the details of which appear in para 16.1 of the assessment order. The addition was made on the ground that neither any explanation was rendered nor any confirmatory letter was filed in respect of the above loans. The matter was carried before the CIT(A). It was found by the CIT(A) that assessee had filed confirmatory letters and other details in respect of such cash credits before the Assessing Officer on 26th March, 1997 though not considered by him on account of paucity of time. The Assessing Officer was directed vide letter dated 5-1-1993 to re-examine these facts. The Assessing Officer after examining the relevant facts accepted the cash credits to the extent of Rs. 3,90,000 in respect of 9 parties. In respect of two parties namely Suresh Advani and Manju Advani, the Assessing Officer submitted in his report that the transactions were not genuine since the depositors failed to reply satisfactorily when asked about the source of investment. The amounts in respect of these two cash credits were to the extent of Rs. 2,15,000 as per the details given at page 6 of the appellate order. In respect of the balance seven parties, no comments were made by the Assessing Officer since these parties could not be contacted. Details of these parties also appeared at page 6 of appellate order. The total amount in this respect was Rs. 3,15,000. In the appellate proceedings, the CIT(A) asked the assessee to furnish confirmation letters with supporting evidence to prove the genuineness of such loans in respect of the depositors who could not be contacted. The assessee filed the supporting evidence such as confirmation letters, xerox copies of the Bank slips, extract of the balance-sheet and the details regarding repayment of loans. On perusal of these details, it was found by the CIT(A) that the cash credits in the name of seven persons were repaid by cheques. Three of these parties were assessed to income-tax. All the parties had confirmed the amounts given to the assessee and repayment made by the assessee. On the basis of these materials, the CIT(A) deleted the addition of Rs. 3,15,000 in respect of the persons who could not be contacted by the Assessing Officer. In respect of other two parties i.e. Suresh Advani and Manju Advani, it was found by the CIT(A) that both of them had produced copies of their capital account, balance-sheet and details of their assessments. Both the parties had categorically admitted that they advanced the amount to the assessee and subsequently received back. Confirmatory letters were also filed before the Assessing Officer. Further, the repayment was made by cheques. In view of these facts, the addition of Rs. 1,85,000 in respect of these two creditors was also deleted. Aggrieved by the same, the revenue is in appeal before the Tribunal.

68. The revenue has challenged the order of CIT(A) in respect of seven parties out of nine parties. Perusal of the grounds of appeal shows that deletion of the cash credit in the name of M/s. Soni Enterprises and Shri Gunjan Advani has been accepted by the Department. However, rest of the deletion amounting of Rs. 4,65,000 has been challenged in the appeal for assessment year 1993-94. Both the parties have been heard. In our opinion, there is no merit in the appeal of the revenue inasmuch as the CIT(A) has given cogent reasons for deleting the addition made by the Assessing Officer. The relevant materials relating to such addition have already been referred by us which were taken into consideration by the CIT(A). No material has been brought before us to take contrary view. In our view, the CIT(A) was justified in deleting the addition made by the Assessing Officer after considering the relevant materials before him. Accordingly, the order of CIT(A) is upheld.69. The next issue relates to disallowance under section 43B on account of delayed payment pertaining to Provident Fund liability. This issue is now covered in favour of the assessee by the decision of Bangalore Bench of the Tribunal in the case of Hunsur Plywood Works Ltd. v. Dy.

CIT [1995] 54 ITD 394. Following the same, it is held that CIT(A) was justified in directing the ITO to dispose of the matter in accordance with the ratio laid down by the Tribunal in the aforesaid case.

Accordingly, the order of CIT(A) is upheld on this issue.

70. The revenue has also raised following grounds in respect of assessment year 1990-91 :- "On the facts and in the circumstances of the case, the CIT(A) erred in directing to give set off of unaccounted investment made in the earlier years out of "on money" earned in the future years.

On the facts and in the circumstances of the case CIT(A) erred in equating the set off given in respect of unaccounted investment made in the same year.

On the facts and in the circumstances of the case, there is a question of earning "on money" in assessment year 1989-90 as neither the shops were not ready for sale nor sold and further no "on money" has been recd. for the assessment year 1990-91." 71. The above grounds are inter-connected and relate to the direction given by the CIT(A) in para 7.9 of his order which may be quoted "however, following the same principle and the line of action adopted by the Assessing Officer for adjusting part of the difference of Rs. 1.63 crores on account of unrecorded investment for assessment years 1991-92 to 1994-95 out of the sale of shops and "on money" received, the addition on this ground for assessment years 1989-90 and 1990-91 be adjusted as and when sales affected in future against the said construction commenced in these years." 72. After hearing both the parties, we agree with the ld. Senior D.R.that CIT(A) had no jurisdiction to travel beyond the assessment years involved before him. Therefore, it is held that CIT(A) was not justified in giving any direction with reference to the addition made for assessment year 1989-90. Since assessment year 1990-91 was before him, the CIT(A) could issue the directions. However, it has been held by us in the earlier part of order that approach of the Assessing Officer in this regard was not correct. It has been held by us that it is the "on money" which has to be taken into consideration while computing the profits from the V.V. Market Project. It has been further held that no addition can be made in respect of unaccounted expenditure relating to assessment year 1990-91 since enough "on money" was available with the assessee for making such expenditure. Since the addition on this account has been deleted for assessment year 1990-91, the direction of the CIT(A) in this regard has become infructuous.

Hence, the above grounds raised by the revenue are disposed of accordingly.

73. The last issue relates to charging of interest under sections 234A, 234B and 234C. This issue is consequential in nature. The Assessing Officer is directed to modify the demand on the basis of the final order that may be passed by him after giving effect to the order of the Tribunal.

74. In the result, all the appeals of assessee as well as revenue are partly allowed.


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