Bombay High Court

Dy. Cit vs Neelkanth Builders (P) Ltd. on 16 October, 2003

Equivalent citations: (2004) 87 TTJ Mumbai 287

ORDER

A.D. Jain, J.M.

Common issue of deletion of addition attributable to on-money component received on sale of flat is involved in these six appeals filed by the department for assessment years 1989-90 to 1994-95. As such, they are being disposed of by this single common order.

2. The learned authorised representative for the assessee has addressed arguments based on the assessment year 1994-95. Accordingly, we shall take this year as the focal year for the purposes of this order.

3. The assessee- company carries on the business of construction of residential flats at Surat. There was a search and seizure operation at the residential premises of one of the directors of the assessee- company, namely, Shri Shailendra Kumar Agarwal at Surat, on 31-2-1994 (sic). During the course of search and seizure proceedings, a small paper (hereinafter referred to as the 'Chit') containing the details of sales of flats in Sarita Building, was seized as per Sr. No. 23, p. 25 of the seized material. The details of this chit are as under :

2111 Sq. ft.

Other side of chit

351.00

260.00

740961.00-15=

548860-15=

49000

x 10 Upto Feb.,

36000

x 10

490000

360000

468000

351000

22000

Based on this information certain enquiries were conducted by the IT department and statements under section 131 were recorded of 7 individuals, who purchased flats in the three buildings of the assessee- company, i.e., Sagar, Sangam. and Sarita. The assessee at Surat constructed all these three buildings. These statements were recorded on the date of search, i.e., on 31-2-1994 (sic), other than those of Ramswroop Jagdishprasad Agarwal and Badriprasad Agarwal. The statements of these two persons under section 131 were recorded on 20-4-1994. As per the assessing officer, the chit seized from the pocket of Shri Shailendra Kumar Agarwal, director, depicts cash payment of Rs. 260 per sq. ft., which was corroborated by the statements of Badriprasad Agarwal, Purushotam Goyal and Ramswroop Jagdishprasad Agarwal. Therefore, the assessee was called upon to explain as to why the cash components received out of the sale of flats should not be added to its income. The assessee responded by saying that nobody had stated having made cash payment; the consideration agreed to be paid in cash was for extra amenities to be provided in the flat; that no person admitted having made actual payment to the assessee; that just because in the first statement, these persons could not give the nature and the purpose for agreeing to make extra payment, the assessee could not be assumed to have received any on-money receipt; that all the persons have confirmed the real facts in the statements recorded on 31-2-1994 (sic), at the time of crossexamination; that they have denied having made any cash payment; that the statement of the director, Shri Shailendra Kumar Agarwal was recorded under duress at the time of search; that the director admitted certain income in a confused state of mind, unsupported by any material or evidence; that the assessee had produced certain material and evidence to establish that the admission was incorrect and against the evidence on record; the nature of the noting on the chit also stood explained in the statement of Shri Shailendra Kumar Agarwal, recorded on 22-3-1994, in the crossexamination on 22-3-1994, all the three persons had denied payment of any cash against purchase of flats; that they had made it clear that no cash was paid to the assessee and the amount agreed to be paid in addition to Rs. 351 was for extra amenities; that at the time of search, no evidence of income having been spent or invested somewhere was found; even the departmental valuers in the case of Lalit Mohan Jodhani; had valued the flat in Sangam Building at Rs. 292 per sq. ft. as on 31-3-1992, where the agreement in that building was made at Rs. 301 per sq. ft_ which showed that there was no cash portion received by the assessee; that even the registered valuer valued a flat in a nearby location at Rs. 230 to Rs. 260 per sq. ft. giving comparable cases in support of the valuation report; and that the consideration was agreed for extra work, which may be considered at the time of completion of the project, since the building was not yet completed.

4. The assessing officer dealt with the above submissions on behalf of the assessee in detail. Additions were made which were deleted by the learned Commissioner (Appeals).

5. The grouse of the department is that the addition was attributable to the money component received by the assessee on sale of flat. It is alleged that while ordering the deletion, the learned Commissioner (Appeals) did not consider the evidence against the assessee in the form of papers seized from the director and his statement under section 132(4) admitting additional income, which was ' recorded during the search proceedings, and the statement under section 131 of the Act, made by the flat purchasers and other persons. It is algo pleaded that the learned Commissioner (Appeals) erred in accepting the retraction of the statements disregarding the fact that the onus for the allegation that the statements were recorded under coercion was not discharged. Undisputedly, the search action was carried out in the residential premises of one of the director of the assesseecompany. No premises of the assessee- company were searched. The residence searched bears the address of 4, Swami Nagar, near Lake View Hotel, Surat. The director is a 17 per cent shareholder of the assessee- company. The chit recovered from the pocket of the director bears details, as reproduced hereinabove. The averment on behalf of the assessee is that this chit carries no details with regard to any flats to whom sold. Our attention is drawn to the fact that in the statement of the director, contained at pp. 1 to 7 of the assessee's paper book (APB), not even a single question was put to the director with regard to this chit. In the search, jewellery worth Rs. 5.17 lakhs, and cash of Rs. 20,000 were found and nothing beyond. Neither books of account, nor any incriminating evidence were discovered. The director was not confronted with the statement of five flat purchasers, which were recovered on the date of search. It was for the first time on 22-3-1995, that the director was confronted with the chit in question (attention in this regard is drawn to p. 41 of the paper book). The director did not admit having received any on-money by the assessee. Regarding Rs. 90 lakhs, during the course of search, the director submitted, in response to question No. 6 at p. 5 of the paper book, that on-money was taken. In this regard our attention was drawn to the answers to question Nos. 3, 4, 7 and 9 also.

6. We have been taken through the bulky paper book containing the voluminous evidence filed, including the affidavits of the flat owners filed before the assessing officer, the cross-examination of the accounts clerk, the affidavit of the 33 purchasers who say that the payments were made through cheques and not in cash. The valuation report was also obtained where the rate has been given at Rs. 292 per sq. ft., whereas the assessee sold at Rs. 301 per sq. ft. Sample rates of surrounding years were relied on. Whereas the department says that the entries to the right (back) of the chit represent cash payment, the learned authorised representative for the assessee contends that cash payment, cannot be installed. There was no search on the company, but it was conducted only on the director in his personal capacity. The assessing officer made a total addition of Rs. 45,94,230 in all these years involved. Attention is drawn to p. 17 of the paper book, which comprises letter dated 30-4-1994 from the director, Shri Shailendra Kumar Agarwal to the assessing officer. In this letter, the break up of the disclosure of Rs. 90 lakhs is given, the director has owned up Rs. 15 lakhs. The learned authorised representative for the assessee pointed out that the assessing officer has not. mentioned this statement/letter at all and that the assessing officer did not consider it.

7. On his turn, the learned departmental Representative stated that the aforesaid letter dated 30-4-1996, has been referred to by the assessing officer in the assessment order for assessment year 1994-95.

8. The learned authorised representative for the assessee, continuing, submits that the question involved herein is as to whether the statement of the director was recorded under duress and whether the director was authorised to declare the income of the company, when he was holding only 17 per cent share therein and particularly, when the search was conducted and the books were not found at the time of search conducted on the director. So, there was no occasion for the director to make the disclosure of Rs. 90 lakhs.

9. Refuting the submissions of the learned authorised representative of the assessee, the learned departmental Representative averred that the director was looking after the Sarita building of the assessee- company and was correctly searched. Attention is drawn to p. 9 of the assessment order for assessment year 1993-94, wherein the assessing officer observed that Shri Shailendra Kumar Agarwal is the only residential director looking after the affairs of the assessee- company and therefore, he has full knowledge of the facts and figures concerning the sale of flats; that accordingly, a statement of the director who is directly incharge of the business activities is a direct evidence as to the facts of the case; that he has confessed the receipt of the on-money payment and admitted the same under section 132(4) and also by filing a letter before the department subsequent to the search proceedings; that the admission of on-money payment at the time of search and subsequent filing of offering of income goes to prove that the assessee received on-money payment and that there was no duress, that if there was a threat or duress on the assessee, there was no reason as to why it did not retract the statement immediately; that the statement of the director was not retracted for a period of 11 months, which goes to prove that the assessee had given a statement which was true and correct and the statement was given by the director of his own will and consent; and that the subsequent retraction by the director was only an afterthought.

10. We have heard the parties and have perused the material available on record. The department has not been able to prove the alleged on-money payment received by the assessee on the sale of flats. The chit recovered from the pocket of the director is not evidence conclusive enough to point out any accusing finger towards the assessee- company. Even the other evidence on record does not prove the case of the department. Besides the fact that the search in question on the residence of the director of the assessee-company and that no premises of the assessee- company were searched, the retraction of the statement of the director does not stand successfully impugned by the department. Undeniably, no books of account or other incriminating evidence were found during the course of search. The statements of five flat holders, recorded on the date of search were not got confronted to the director. The chit itself was put to the director on 22-3-1995, a good eleven months plus after the search was conducted. There are, on record, affidavits of all the flat owners. All these persons were cross- ezamined by the assessing officer. The affidavits of three purchasers have also been appended in the paper book. It has been deposed that the payments were made by cheques and not in cash. The valuation report, which is privy to the department and not to the assessee, itself divulges a rate at Rs. 292 per sq.'ft. This rate, in turn, is based on the rate prevalent. The assessee made sale at Rs. 301 per sq. ft. It is also correct that the chit, which has been made the very basis of the addition in question, does not contain even as much as an indication as to particulars with regard to the alleged sales, the flats, the buildings and the purchasers. All said and done, we do not find any fault whatsoever with the deletion ordered by the learned Commissioner (Appeals). Having considered the case laws cited by either party; we find that the facts attending warrant the order of the learned Commissioner (Appeals) being maintained. It is so ordered.

11. Resultantly, the appeals filed by the department are dismissed.