DCIT Circle-3(3), Ahmedabad V. Shri Alpeshkumar C.Patel, Ahmedabad

ITA 1991/AHD/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8846 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 19-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY PRATAP SINGH
• Assessee Lawyers: Not Found
• Keywords: Bogus purchase; Rejection of books of accounts; Unexplained investment; Value adopted by valuation officer; Capital asset; Business income; Opportunity of being heard; Rule of consistency; Deemed to accrue or arise in india; Additional evidence; Cost of acquisition; Tangible material; Assessment record; Benefit of exemption; TDS; Set aside; Capital Gains
• Section: 68; 69; 145; 54; 144; 143(3); 54F; 133(6); 143(1); 251; 208; 139(1); 145(3)

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ C’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER आयकर अपील सं./ITA No. 1908/AHD/2018 िनधाᭅरण वषᭅ/Asstt. Year: 2011-2012 Alpeshkumar C. Patel, 503, Milestone Building, Drive in Road, Thaltej, Ahmedabad-380052. PAN: AEAPP9489G Vs. A.C.I.T., Circle-3(3), Ahmedabad. And आयकर अपील सं./ITA No. 1991/AHD/2018 िनधाᭅरण वषᭅ/Asstt. Year: 2011-2012 D.C.I.T., Circle-2(1)(2), Ahmedabad. Vs. Alpeshkumar C. Patel, 503, Milestone Building, Drive in Road, Thaltej, Ahmedabad-380052. PAN: AEAPP9489G (Applicant) (Respondent) Assessee by : Shri Deepak R. Shah, A.R Revenue by : Shri Ajay Pratap Singh CIT. D.R with Shri V.K. Singh, Sr.D.R सुनवाई कᳱ तारीख/Date of Hearing : 21/06/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 09/09/2022 ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 2 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned cross appeals have been filed at the instance of the Assessee and the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-3, Ahmedabad, dated 09/07/2018 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-2012. ITA No. 1991/Ahd/2018, an appeal by the Revenue for A.Y. 2011-12 2. The revenue has raised the following grounds of appeal: a) The Ld.ClT(A) has erred in law and on facts in deleting the addition of Rs. 7,56,02,334/- made by Assessing Officer whiie disallowing the claim of Capital Gain of the assessee and treating the same as business income with a resultant disallowance of claim of deduction u/s 54F of the act. b) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 37,10,739/- made by the Assessing Officer on account of estimation of Net Profit. c) The Ld.ClT(A) has erred in law and on facts in deleting the addition of Rs. 3,56,62,494/- made by the Assessing Officer on account of unexplained unsecured loan. d) The Ld.ClTfA) has erred in law and on facts in deleting the addition of Rs. 52,20,129/- made by the Assessing Officer on account of cessation of liability u/s 41(1) of the act. e) The Ld.CIT[A) has erred in law and on facts in deleting the addition of Rs. 24,92,862/- made by the Assessing Officer on account of treating the income from other sources which was claimed as agricultural by the assessee. f) On the facts and circumstances of the case, Ld CIT(A) ought to have upheld the order of the Assessing Officer. g) It is, therefore, prayed that the order of Ld CIT[A] may be set aside and that of the Assessing Officer be restored. 3. The first issue raised by the Revenue in ground No. 1 is that the learned CIT(A) erred in deleting the addition made by the AO for Rs. 7,56,02,334/- treating the same as business income and thereby allowing the deduction under section 54F of the Act. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 3 4. The facts in brief as arising from the order of the authorities below are that the assessee in the present case is an individual and engaged in the activities of work contractor and consulting engineer. The assessee in the year under consideration has purchased and sold certain number of land properties i.e. 28 properties purchased and 11 properties sold. The assessee on sale and purchase of the impugned properties has declared the income under the head capital gain. Likewise, the AO also found that the assessee has purchased and sold different properties in the earlier years as well. All these land were sold after converting the same into non-agricultural land. The summary of purchase and sale of different properties in the earlier years stand as under: F.Y. No of land pyrchased No of land sold 2007-08 23 lands 4 land 2008-09 2 1 2009-10 5 2 2010-11 28 11 2011-12 Details are not available Hence not give 10 2012-13 Details are not available hence not given 5 5. In view of the above, the AO considering the frequency of transaction for the purchase and sale of properties in the systematic manner was of the view that the assessee is carrying out the activity in the nature of trade and commerce or adventure in nature of trade and commerce. Thus he was of the view that such transactions cannot be categorized for the purpose of income under the head capital gain. As such the AO proposed to treat the activity of the assessee for the purchase and sale of properties as business for calculating the income under the head business and profession instead of capital gain. 5.1 The AO also found that the assessee has purchased agricultural land at Vatav bearing survey no. 1523 for Rs. 1,24,96,400/- (cost + Exp) vide purchase deed dated 15-03-2010. The same was converted into non-agricultural property and sold to DBS Affordable Home Strategy Ltd (DBS) vide sale deed dated 22-03-2011 for ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 4 Rs. 5,85,77,100/-. But the assessee has shown the sale consideration at Rs. 1,10,77,526/- leading to the difference of Rs. 4,74,99,574/- only. On question by the AO, it was explained that before selling the property to the party namely DBS, it has entered into an agreement (Banakhat) dated 08-05-2010 to sale the impugned land with certain parties which are confirming parties. As such the assessee has paid compensation to these parties amounting to Rs. 4,74,99,574/- only. Thus, the assessee effectively has received a sum of Rs. 1,10,77,526/- against the amount of sale consideration recorded in the conveyance deed which was duly disclosed in the books of accounts. However, the assessee also admitted to have received Rs. 15 lakh in cash at the time of entering into Banakhat which was omitted to be entered in the book of accounts. 5.2 However, the AO found that the confirming parties to whom the compensation was paid by the assessee was not representing the actual transaction. In fact the AO called them and confronted about the receipt of money by them as confirming party. But all the confirming parties in their statements recorded under section 131(1) of the Act denies to have entered into any actual agreement with the assessee for the purchase of the impugned property. As such, all the confirming parties admitted that they were paid commission of ₹1 lakh each by the assessee for using their name and bank account to manipulate the transactions. As such, whatever money was received by them in their respective bank account, the same was withdrawn by the assessee. As such all the confirming parties have given blank cheques to the assessee to withdraw the money from the bank accounts. 5.3 The AO besides the above further found that the assessee has purchased the agricultural land in the month of March 2010 which was subsequently converted into non-agricultural land by the assessee. As such the land which was sold by the assessee to the party namely DBS was non-agricultural land. According, to the AO, the assessee has converted agricultural land into non-agricultural land by incurring the expenses out of his own fund. As such, the value of the property has been multiplied in upward direction. Further the DBS Affordable Home Ltd launched their ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 5 project on said land in the month of May/June 2010 with the permission of the assessee only which also establishes the fact that there was no confirming party in actual sense. Thus, the AO concluded that the assessee has suppressed the income by the amount of Rs. 4,60,80,300/- being the difference between the actual sale price of the property recorded in the conveyance deed viz a viz the sales shown by the assessee in the books of accounts. In view of the above, the AO worked out the profit from the business of land dealing under the head business and profession in the manner as re-produced below: S.No. Description of land Purchase cost Sale consideration (As per deed) Expenses incurred if any Profit arises from sale of land 1 Land at Por 315000 10899000 - 10584000 2 Land at Ognaj 1525/234 256666 3076000 - 2819334 3 Land at Ogjan 1525/233 360000 4224000 - 3864000 4 Land at Ognaj 1418/2 450000 10196000 - 9746000 5 Chandkheda 128/129 139500 2647800 - 2508300 6 Land at Vatva 1523 12496400 5,85,77,100 - 46080700 Total 7,56,02,334 5.4 The AO without prejudice to the above also disallowed the deduction of Rs. 1,89,59,190/- claimed under section 54F of the Act. As such, the assessee claimed to have made investments in the construction of house property located at Nirat Park on the land which was purchased in the financial year 2007-08. As per the assessee, the construction was started from the financial year 2008-09 which was ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 6 continued in the year under consideration i.e. financial year 2010-11. As such, the assessee has sold different pieces of land in the financial years 2008-09, 2009-10 and 2010 11 and it was claimed by the assessee that the amount of sale consideration has been invested in the construction of the bungalow. The necessary details of the exemption claimed by the assessee in different assessment years including the year under consideration is reproduced on pages 51 to 52 of the assessment order. 5.5 However, the AO was not satisfied with the claim of the assessee on the reasoning that there was no intention of the legislature for providing exemption under section 54F of the Act against the capital gain arising from more than different properties in different assessment years. As per the AO the 1 st property was sold in the financial year 2008-09 against which the assessee claimed the exemption under section 54F of the Act. Likewise the assessee against the sale of properties in the financial year 2009-10 has also claimed the deduction under section 54F of the Act against the construction of the same property which continued in the year under consideration. As per the AO, that is not intention of the legislature to provide the exemption under section 54F of the Act of the capital gain arising from the sale of different properties in different years. 5.6 The AO also observed that the assessee has not furnished the necessary details suggesting that the assessee has utilized the surplus money arising from the sale of the properties by depositing the same in the capital gain account scheme on or before the due date of filing the return of income under section 139(1) of the Act. It was the contention of the AO that the amount of consideration not utilized for the purpose of construction/investment in the property should have been deposited in the capital gain account scheme as required under section 54F of the Act. It was also observed by the AO that the assessee in his balance-sheet has shown certain creditors which were outstanding as on 31-03-2011 amounting to ₹1.54 crores. According to the AO such outstanding amount suggests that the assessee has not used the sale consideration arising on the transfer of capital asset ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 7 for the purpose of utilizing the same in the construction of the house. As such, the assessee on one hand has not furnished any detail for depositing the amount under the capital gain account scheme and on the other hand the assessee has shown outstanding creditors which proves that amount on the sale of property was not utilized for the purpose of the construction of the bungalow as claimed by the assessee. Likewise, the assessee has also availed housing loan from the bank for an amount of Rs. 2,29,59,000/- which was disbursed between the dates 21 st January 2009 to 26 th March 2010 and thus it also becomes evident that sale consideration on the transfer of land was not utilized for the purpose of the construction of the bungalow. 5.7 The assessee was holding more than one residential property on the date of transfer of original asset other than new asset. Accordingly, for this reason as well the assessee is not entitled for exemption under section 54F of the Act. 5.8 The AO also found that expenses shown by the assessee towards the construction of the bungalow which were outstanding as on 31 st March 2011 were bogus in nature with respect to certain parties namely Devnandan Enterprise, M/s Ganesh Enterprise, Jadeja Enterprise, Akshar Corporation. The conclusion of the AO was based on the fact that on filed enquiry these parties were not traced on the given address, showing very meager income. Their VAT/TIN registration were cancelled. On verification of their bank account it was noticed that huge amount credited in their bank and immediately withdrawn or transferred to others. The bank account were in operation for limited period and thereafter got closed. The AO was pleased to reject the contention of the assessee that the payment to the outstanding creditors were made in the financial 2011-12 and 12-13 through the banking channel by observing that the payment through the banking channel is not sufficient enough to prove the genuineness and business expediency of any expenditure debited in the profit and loss account. As such the AO was of the view that the field enquiries conducted by the inspector of income tax cannot be ignored which have been elaborated in the preceding paragraph. In view of the above, the AO ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 8 disregarded the claim of the assessee made under section 54F of the Act amounting to ₹ 1,89,59,190.00 and added to the total income of the assessee. 6. The aggrieved assessee carried the matter before the learned CIT(A) and submitted that the investment made in property and subsequently sold were not in the nature of trade. He being agriculturist regularly invested in agricultural properties and carried out agricultural activity on the same. However, some properties were sold in second year after the purchase as there was need of fund for the construction of house at Nirat Park. The lands were converted from agricultural to non-agricultural to fetch better price only. Therefore, the sale and purchase of property cannot be held as business activity. 7. With regard to property at Vatav sold to DBS Affordable Home Strategy Ltd. The assessee furnished affidavit of main confirming party namely Shri Ajay Shah and Director of DBS Shri Sanjay Shah wherein it was stated that they were unaware of use of their statement and also the ultimate beneficiary of transaction was DBS not the assessee. It was further submitted that the entire addition was made on the basis of statement of confirming party without having corroborating materials and without providing copy their statement for rebuttal and cross examination. The assessee also submitted that the amount received by the confirming parties were returned back to DBS only. Therefore, no addition can be made in his hand on account of amount paid to the confirming parties. 8. With regard to deduction under section 54F of the Act, the assessee submitted that AO has disallowed the claim by alleging bogus expenditure. As such the purchases for construction material were duly supported by bills and voucher and payment made through banking channel. VAT/TIN number of the parties cancelled by the VAT department cannot be the basis for holding the purchases as bogus. The observation of the AO that amount credited in parties account immediately withdrawn or transferred is not based on any tangible materials. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 9 9. The allegation that the assessee was holding more than one residential property is also not factually correct. As such the flat at Smita Tower purchased by him but same was transferred in the name of wife long back. Likewise the flat at Akruti and at Stayam Develpoper are used for office work. 10. The learned CIT(A) after considering the facts in totality allowed the appeal of the assessee in part by observing as under: The perusal of finding of AO of Shri Prakash Shah quoted above has important bearing on decision making in instant case. The submission of the appellant and argument is considered and it is seen that from the case that the main crux of the addition involved around the taxation of the profit of confirming parties i.e. Rs. 4,60,80,300/-. It is seen from the affidavits of Shri Sanjay R Shah, director of M/s DBS Affordable Home Strategy Limited dated 27/12/2014 that he has categorically affirmed that the amount which has been given to three confirming parties against sale of land survey no. 1523 at vatva, has been received back by him and the said . amount has been disclosed in their income tax return of A.Y. 2015-16 as income. It is also seen from the bank statement furnished by the appellant of all the three confirming parties that all the funds which have been received directly from M/s DBS Affordable Home Strategy Limited into their bank accounts were transferred thereafter to the accounts of Mr. Ajay Shah and Shital Shah who are related party to the director Shri Sanjay R Shah. The contents of affidavit have remained uncontroverted, I therefore same- to be taken as true as per Gujarat High Court judgment in the case of Glassline Equipment -2 53 ITR 454 (Guj.). If the payments have been made directly to three confirming parties having been duly reflected in the books of account of M/s DBS Affordable Home Strategy Limited, the provisions of Section 69 of the Act are also not applicable as per ratio of jurisdictional High Court's decision in the case of CIT Vs. M.B. Patel 221 Taxmann 143 (Guj.) as the appellant was not required to reflect such entries in his books of account. Further, on perusal of the assessment order, I find that the AO has not suspected or questioned the transaction with the confirming party on the ground of adequacy/inadequacy of consideration but has merely doubted the genuineness of the payment made solely on the ground of certain statements which stand retracted in substance in view of affidavit subsequently filed owning up those amounts for payment of taxes by M/s DBS Affordable Home Strategy Limited. It is by now settled law that no addition can be made merely on suspicion without any corroborative evidence. The fact remains that the appellant has not received that amount at all as per facts on record. There is no positive evidence for department to conclude that the appellant has received any consideration in cash over and above disclosed in return of income. Moreover, the disputed amount has never come to the appellant as per evidence on record. Therefore, the taxability in appellant's case is not called for. In view of the above records and the affidavits as well as bank statements of confirming parties, owning up of the amount in the income tax return/ assessment of the company in respect of the transaction related to land Survey No. 1523 at Vatva, I am of the considered opinion that the addition made by the A.O. in the hands of appellant is not justified and the same is thereby deleted, which would otherwise be a clear case of double taxation. As regards (ii) above, the appellant has contended further that the A.O. has considered the sale of the various land as business income instead of capital gain. During the course of the assessment proceedings the Assessing officer has stated that during short spar) of time, the appellant indulged in purchase and sale of number of properties. The quantity of land traded, ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 10 frequency of sale / purchase of land over short span clearly indicated that the appellant is engaged in the business of trading in land, was the view of AO. The appellant has mentioned that he is not trader of lands, but he is consulting engineer and labour contractor since last many years. It is submitted that he is involved in the activity, 6f investing in the lands since he is an agriculturist and he holds some ancestral lands alongwith his family members. It is submitted by the appellant that he is holding the lands as investor since last many years and as there was dire need for the funds for construction of house at Nirant Park, he has sold some of the lands within 1 or 2 years. Therefore, it was contended that this should not be taken as conclusive proof to treat as if he was trader in land deals. The A.O. has considered the sale of the land as trading activity/adventure in nature of trade and treated the sale of the lands as profit from business and profession. It is seen from the accounts of the appellant that he is having his own business of consulting engineer and contractor and remuneration from Firm. In this transaction of sale and purchase, no efforts like businessman were involved in the transaction nor has the appellant utilized the services of any person in the said transactions. It is submitted that in determining whether a particular transaction is an adventure in the nature of trade, various Courts have emphasized that all the circumstances of the transactions must be considered and that no single criterion can be formulated. The appellant has been following consistently this method of accounting and any change to convert the investment into stock in trade would result into unsettling already settled assessments which goes against the clarion call by the government of the day for reducing the avoidable litigation in the courts for better dispensation of justice to the public. The A.R. of the appellant has ajso argued during the appellate proceedings that the earlier year assessments has already been made by the department by considering.the appellant as investor and not as trader of the land. I also find that no borrowed funds from banks against mortgage of such property which is case of most of the developers, has not been utilized for purchase of such lands so as to treat it as business activity. I have examined the facts on record and feel that emphasis of the appellant for adopting the principle of consistency is valid. The appellant is the owner of different properties for long and has been accepted as investor by the department. In the year under' consideration, a bungalow at Nirant Park was being constructed wherein huge funds were required and the appellant sold certain land plots to garner the resources. This contention is found correct as per facts on record. This is not the new issue, the principle of consistency required to be followed as has been held in various below mentioned case laws: (i) DCIT Vs. Sulabh International Social Service Organisation [350 ITR 189 (Patna)] (ii) CIT Vs. Ranganathar& Co. [316 ITR 252 (Mad)] (ii) GopalPurphit Vs. Jt. CIT [334 ITR 308 (SC] In view of the above, it is my considered opinion that the appellant is not involved in the trading of the land but he is investor and an agriculturist. Therefore, I am inclined to hold accordingly and direct the AO to treat the said income as income from capital gains. The findings of AO that the income to be treated as emanating from "Business & Profession" are not accepted. As regards (iii) above, it is seen that the Appellant has constructed residential house at 2, Nirant Park, Ahmedabad out of the capital gain on sale of immovable properties. The appellant has claimed deduction u/s 54F of the Act against the said capital gain. The appellant has contended further that the A.O. has rejected the claim under section 54F of the Act by observing that the commercial tax department has cancelled the TIN of the supplier of the different building material, the appellant owns more than one house property ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 11 on the date of sale and the capital gain arise from the different properties as claimed by the appellant in more than one property and in the absence of any details of working of net consideration amount in respect of each land from which exemption u/s 54F of the Act is claimed. During the appellate proceedings the A.R. of the appellant Shri Narendra Tundiya argued that the appellant has constructed house for which he required huge funds. During the year under consideration, the requirements of the funds was much more than the value of the any single property sold by him as per facts on record. The appellant has argued that the house was big and the construction work lasted for two to three years. In the circumstances, the appellant has contended that the stand of the A.O. for considering the construction work of the bunglow as bogus through getting bills of different suppliers is totally baseless. During the course of the appellate proceeding the appellant contended that this alleged supplier of the building" material have already furnished the statement of account of the suppliers, copy of bills, VAT application copy dully received by VAT "department, challans etc. The appellant has argued that merely cancellation of the VAT registration number of some of the suppliers of the building material and that too after date of purchases, could not be the ground of rejection of claim u/s 54F of the Act. It is seen from the various submission made by the appellant and also rejoinder filled by him the following issues emerged so far as it relates to deduction u/s.54F of the Act. (a) The appellant owns more than one house on the date of sale of original assets (b) Claim of the deduction against sale of multiple properties and absence of net consideration amount of each property. (c) Cancelation of the registration of some of the supplier of the building materials. During the appellate proceedings all the above issues have been perused and discussed with the appellant. In view of the owning of one or more properties the appellant has already stated that the flat at Smita Tower was under transfer to his wife Shri Pravina Patel, air other properties have been used by hjm as office at different location and he has also submitted the confirmation letter from the builder in this regard which is on record. On verification it is found that flat at Smita Tower has technically got transferred to wife of appellant later, therefore, he was having one residential flat owned and occupied for residential purposes. The perusal of detail on record indicates that the appellant was not having any other residential property on the date of making investment into new residential house as per detail below: Booking Date purchase Date Sale date Use Remarks 1 Akruti Flat 706 21.11.2009 18.06.2000 07.12.2011 Office use .Used as office premises as appellant has fairly large business transactions and records. 2 Satyam Sky Line Flat B- 202 10.12.2010 17.06.2012 17.04.2013 Required for- Office Use but could not materialized. Not ready and not owned on the date of sale of original assets as no registered deed was done and flat was no ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 12 inhabited and was under construction. 3 Manekbag 24.09.2007 Old bunglow Only given advance against banakhat, however, disputed and deal could not got materialized. The advance amount not received back. 4 Flat at 22.11.2010 Residential Construction Atreco Flat work not started (Adani) and not owned on the date of sale of original assets ' transferred. Only booking amount was given and the deal did not v_ go through and cancelled later on. Therefore, the appellant was not having more than one residential premises other than the new bungalow as is clearly seen in chart above. The premises for which either only advance given sans BU certificate or never got completed and occupied, cannot disqualify the appellant for deduction U/S.54F. In respect of the utilization of capital gain of one or more original land parcels in buying one single home, the argument of the A.R. of the appellant is correct as there is"rio bar on the investment in one single home from the sale of different assets. With reference ~to the cancelation of TIN of the. some of the suppliers of building materials, ( ' it is observed that the cancellation procedure of this supplier has ; been made ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 13 by the VAT department only after the completion of the F.Y. 2010-11 relevant to A.Y. 2011- 12. In any case it is definitely after,the purchases were made and cheques were issued/debited by the appellant. The appellant has also furnished the ledger and statementof accounts which reveal that he has also made payment through cheques against the said bill and therefore the stand of the A.O. is not sustainable on this count. Alternatively to verify the genuineness of the construction work of the bunglow, no attempt has been made by the department either through DVO report or a report from the Circle Inspector. The contention of the appellant is logical, however, I am not finding any detail on record so far as Devnandan Enterprise for purchases amounting to Rs.20,49,189/-. The only evidence can be verified is the payment has been made to banking channel. Therefore, the claim of expenditure of Rs.20,49,1897- is not found tenable at this stage. Hence the investment claimed for deduction u/s.54F to be reduced by Rs.20,49,189/-. As per submission on record the appellant has claimed deduction as per details below: Year Purchase amount Index Sale date Sale amount Capital Gain Exemption available 2004 315000 466594 21.04.2010 10899000 10432406 10899000 2006 256666 ^367182 r 2&r22Q1Q 3076000 2708818 3076000 2006 360000 4931 79 28.12.2010 4224000 3730821 4224000 2007 450000 580672 28.12.2010 10196000 9615328 760190 28395000 26487373 18959190 Although the sale amount is of Rs.2,83,95,000/- and LTCG of Rs.2,64,87,373/- but' the actual expenditure on new house is claimed at Rs.1,89,59,190/-. Hence, the claim under 54F is not consuming the full LTGG earned on sale of different plots of land. Now, the investment itself is reduced by Rs.20,49,189/- therefore, the claim of deduction u/s.54F is to be restricted to Rs.1,69,10,000/-. I therefore direct the A.O. to consider the claim of the appellant against the investment made in the bungalow of Rs.1,69,10,000/- and allow the deduction u/s" 54F of the Act accordingly. The ground No.2 of appeal is partly allowed. 11. Being aggrieved by the order of the CIT(A) both the Revenue and the assessee are in appeal before us. The Revenue is in appeal against treating the sale and purchase of land an investing activity against the finding of the AO for holding the same as business activity whereas the assessee is in appeal against part disallowances of deduction/exemption claimed under section 54F of the Act. The relevant ground of appeal of the assessee in ITA No. 1908/AHD/2018 read as under: That the Ld.CIT(A) erred in law and on the facts of the case in partly confirming the order of the AO in making an addition of Rs.20,49,189/- by reducing the claim made u/s.54F of the Act. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 14 12. The learned DR before us vehemently supported the stand of the authorities below by reiterating the findings contained in the respective orders to the extent favourable to him which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 13. On the other hand, the learned AR before us filed two sets of paper book running from pages 1 to 167 and 1 to 114 and contended that the property in dispute was actually transferred at ₹ 1,10,77,526 +15 lakhs of rupees. Therefore no addition of whatsoever can be made in the hands of the assessee. The learned AR in support of his contention drew our attention on the affidavits of confirming parties, Banakhat, sale deed and the working of capital gain which are placed in paper book. The learned AR reiterated the contentions made before the authorities below. 13.1 The learned AR further submitted that all the details for the construction of the expenses along with the addresses of the parties were furnished before the authorities below. All the payments towards the construction expenses were made through the banking channel. All the relevant details are placed on pages 92 to 167 of the paper book. Thus the learned AR contended that there cannot be any denial of the exemption under section 54F of the Act. It was also contended that there was no property held by the assessee for residential purposes in his name as on the date of transfer. 14. Both the learned DR and the AR vehemently supported the order of the authorities below to the extent favourable to them. 15. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that, the assessee has purchased a piece of land in the month of March 2010 for an amount of Rs. 1,24,96,400/- (cost + Exp) which was agreed to be sold to certain parties (confirming parties) for an amount of Rs. 1.25 Crores through the MOU dated 8-5- ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 15 2010. As per the MOU, the assessee was also paid a sum of ₹15 lakhs by the so called parties 3 parties in cash. 15.1 However, the property was finally transferred by the assessee to the company namely DBS Affordable Home Strategy Ltd (DBS) for an amount of Rs. 5,85,77,100/- as evident from the registered document dated 22-03- 2011. However, the assessee has shown sale consideration in the books of accounts at Rs. 1,10,77,526/- only. As per the assessee, the purchaser being DBS has given a sum of Rs. 4,74,99,574/- to the confirming parties. But, the AO on confrontation from the confirming parties found that they were just acting as the name lenders on behalf of the assessee. As such, the assessee was the beneficiary for the entire sale consideration. Thus, the AO added the amount of Rs. Rs. 4,60,80,300/- being the difference in the amount of sale consideration and cost of acquisition to the total income of the assessee. 15.2 However, the current managing director of the company DBS Shri Sanjay R Shah and main confirming party Shri Ajay J Shah have furnished the affidavits stating that the company being the DBS was the beneficiary of the transaction carried out with the assessee. In simple words, the actual sale consideration was carried out at Rs. 1,10,77,526/- plus 15 lacs but the same was inflated by the company in order to claim higher amount of deduction by way of purchase expenses in the return of income. It was also admitted in the affidavit that the company namely DBS has already offered the impugned amount of difference in the sale consideration to tax. Thus, the learned CIT-A was pleased to delete the addition made by the AO. 15.3 The 1 st controversy arises for our adjudication whether the assessee has received the consideration amounting to Rs. 5,85,77,100/- or Rs. 1,10,77,526/- plus 15 lacs as claimed by him. Admittedly, the amount of sale consideration shown in the registered document stands at Rs. 5,85,77,100/-. As per the assessee, there were three confirming parties which were appearing in the sale deed along with the ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 16 amount of money paid to them being confirming parties. One of the confirming party namely Shri Ajay J Shah was working and associated with the company namely DBS. Thus, it is very much apparent that confirming parties were related to the company namely DBS and not the assessee. It is because the revenue has not brought any material on record other than the confirmations filed by the confirming parties that these were i.e. confirming parties related to the assessee. Furthermore, the confirmation was not supported by any documentary evidence whereas there was a direct and primary evidence available on record that main confirming party namely Shri Ajay J Shah was associated with the company namely DBS. Thus, in such facts and circumstances, it seems that the confirming parties were the persons of the DBS. 15.4 There is no dispute to the fact that the confirming parties have received the sum of Rs. 4,74,99,574/- in aggregate. The learned CIT-A has given a finding that that the amount received by all the confirming parties have returned back to the DBS directly or indirectly. The relevant finding of the learned CIT-A stands as under: It is also seen from the bank statement furnished by appellant of all the three confirming parties that all the funds which have been received directly from M/s DBS Affordable Home Strategy Limited into their bank accounts were transferred thereafter to the accounts of Mr. Ajay Shah and Shital Shah who are related party to the director Shri Sanjay R. Shah. The contents of affidavit have remained unctrovered. 15.5 The above finding of the learned CIT-A has not been controverted by the learned DR appearing on behalf of the revenue. 15.6 In addition to the above, it is very significant to note that the current MD of the company DBS in the affidavit have admitted that the company was the beneficiary of the entire transaction. As such the company has inflated the purchase price of the land in order to claim higher deduction the profit and loss account. The relevant affidavit has been reproduced in the order of learned CIT(A). 15.7 From the above, it appears that the amount which is in dispute has already been suffered to tax in the hands of the company namely DBS and therefore in such ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 17 facts and circumstances no addition can be made in the hands of the assessee as he was not the beneficiary of the sale consideration which was not shown in the books of accounts. Though, the assessee was certainly a party in this manipulated transaction but nothing is coming out from the record that he was paid any extra amount other than the amount of Rs. 1,10,77,526/- plus 15 lacs. 15.8 It is also important to note that the assessee has purchased the property only in the month of March 2010 and the possession of the same was handed over to the company namely DBS in the month of May/June 2010. This fact has not been disputed by any of the authorities below. The relevant extract relating to the handover of the land to the company stands as under: Shri Sanjay R. Shah confirmed in his statement that they have launched the project in May June 2010 with the consent of the assessee, Shri Alpesh C. Patel. 15.9 From the above, it appears that the deal for the transfer of the property was executed much before than the actual date of registration of the property. In such a short span of time, it is also not possible that the property price will jump to that extent until and unless some material is available on record. Even at the time of hearing, a question was put up to the learned counsel appearing on behalf of the assessee about the value of the land for the purpose of Stamp duty, it was communicated to us that the land was transferred by the assessee to the company at the value applicable for the purpose of Stamp duty. The learned DR has also not brought anything on record against the argument advanced by the learned counsel for the assessee. Thus, in our considered view in such facts and circumstances no addition of Rs. Rs. 4,60,80,300/- is warranted in the hands of the assessee on account of sale of property at Vatav. 15.10 As regards the controversy whether the assessee is subject to capital gain on the transfer of land or it is the business income of the assessee, we note that the assessee in the earlier years has also carried out similar transactions which can be verified from the details as reproduced in previous paragraph. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 18 15.11 Likewise, the assessee has also carried out similar transaction in the later years which can be verified from the details as reproduced in the order of the AO. Thus, from the above it is transpired that the revenue in the earlier years and the later years has accepted the similar transactions under the head capital gain. Accordingly, we are of the view that the principles of consistency should be adopted in view of the fact that there was no change in the facts and circumstances and likewise there was no change under the provisions of law. Thus we are of the view that the income shown by the assessee under the head capital gain should be accepted instead of business income as alleged by the AO. 15.12 Coming to the issue of exemption under section 54F of the Act, we note that the exemption under section 54F of the Act claimed by the assessee was denied by the AO on account of various reasons which have been elaborated/ discussed in the preceding paragraph. However, the learned CIT-A was pleased to grant the exemption under section 54F of the Act substantially except for the sum of Rs. 20,49,189.00 for which the assessee is in appeal before us. On perusal of the ground of appeal raised by the Revenue with respect to the exemption allowed by the learned CIT-A, we note that the revenue is mainly aggrieved that the assessee is carrying on the business of land dealings and therefore any profit or gain arising on such land dealings should be subjected to tax under the head business and profession and therefore the assessee cannot be allowed the benefit of exemption under section 54F of the Act. However, we have already held in the preceding paragraph that the activity of the assessee for the sale purchase of the land does not fall under the category of business and profession. As such it was held by us that the income to the assessee on the sale purchase of the properties should be made taxable under the head capital gain and accordingly the assessee is entitled for the exemption under section 54F of the Act. Thus, it seems to us by this finding of the ITAT (us), the grievance of the revenue is answered against it. 15.13 However, for the completeness of the case, we are inclined to adjudicate the different facets connected to the issue of exemption under section 54F of the Act. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 19 The first allegation of the revenue is that the assessee cannot claim the benefit of exemption under section 54F of the Act against the sale of different properties in different assessment years. We are not in agreement with the finding of the AO on this count. It is for the reason that it is nowhere prohibited under the provisions of section 54F of the Act the assessee cannot claim the benefit of exemption of the capital gain arising to it against the sale of different properties. Thus, we hold that the assessee can claim the benefit of exemption under section 54F of the Act against the sale of different properties in different assessment years subject to the conditions provided therein. Admittedly, there were different properties which have been sold in different financial years but the entire sale consideration has been utilized in the construction of one bungalow. There was no allegation of the revenue that the assessee has used the sale consideration arising against different properties in different financial years were deployed in different properties. Accordingly, we do not find any infirmity in the order of the learned CIT-A. 15.14 The next allegation that the amount of sale consideration was not utilized for the purpose of the investment as envisaged under the provisions of section 54F of the Act. In this regard we note that the AO has drawn his conclusion that the amount of sale consideration was not invested in the properties which is violation of the provisions of section 54 F of the Act which was based for the reasons that the assessee has shown sundry creditors relating to the construction of the properties as on 31 March 2011 and the amount of sale consideration was not deposited in the capital gain account scheme on or before the due date of return of income. Besides the above, the AO also observed that there was housing loan available to the assessee but the same was not utilized for the purpose of the investment in the property. In this connection we note that the AO has made charts for different assessment years in which the assessee has sold different lands. These charts are available on pages 51 and 52 of the assessment order. The allegation that there were outstanding creditors were based on the financial statements prepared as on 31-3-2011, in this connection we find that the learned CIT-A has given clear-cut finding that the assessee has made the payment in the subsequent ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 20 year which is to the best of our knowledge is sufficient and substantial compliance though the assessee was required to deposit the amount of sale consideration in the capital gain account scheme. But what we find is this that various courts have held that even the assessee has made investment in the properties in the later years instead of depositing the same in the capital gain account scheme, the assessee cannot be denied the benefit of the provisions of section 54F of the Act. 15.15 It was also alleged that the expenditures shown by the assessee against the construction of the bungalow were bogus in nature. Admittedly, the amount of capital gain is calculated by subtracting the cost of acquisition/cost of improvement from the sale consideration. In the case on hand, the assessee claimed to have incurred expenses on the construction of the bungalow, the genuineness of which was not doubted by the AO but the same were not considered for the purpose of calculating the exemption under section 54F of the Act. Thus it appears that the Revenue has taken the contradictory stand with respect to the claim of the assessee for the expenditures incurred on the construction of the bungalow. For better understanding, if the assessee makes sale of such bungalow in the future, the assessee can claim the deduction towards the cost of land and cost of construction in the given facts and circumstances. It is for the reason that while framing the assessment no doubt was raised about incurrence of the cost by the assessee. As such no reference has been made to the impugned expenses during the assessment proceedings except disallowing the exemption under section 54F of the Act. If the expenditures are not genuine then it is the duty of the revenue to disallow such expenses by reducing the cost of construction of the bungalow. But none of the authority below has done so. Thus it is transpired that the assessee can claim higher amount of cost of requisition and cost of improvement while calculating the capital gain in the event the assessee makes the sale of its bungalow in dispute. It is because the revenue has not doubted on the incurrence of such expenses while framing the assessment. Besides the above, all the necessary details of the construction expenses were made available to the authorities below along with the addresses and the payments were made through the banking channel. Indeed the ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 21 payment was made subsequently but to our mind the delay in the payment cannot be a criteria to draw an adverse inference against the assessee. 15.16 Moving further, the learned CIT-A has given categorical finding that the assessee was holding only one property at the time of the transfer of land. The properties held by the assessee were used for the purpose of the business. Likewise the property representing the flat was transferred long back to the wife by the assessee. All the findings were not controverted by the learned DR based on the material available on record though the onus lies upon the revenue being the revenue appeal. Hence we are of the view that the assessee cannot be denied the benefit of exemption under section 54 F of the Act. Thus we do not find any infirmity in the order of the learned CIT-A to the extent ground of appeal raised by the revenue. With respect to the ground of appeal raised by the assessee for allowing the exemption under section 54F of the Act, we have given a finding in the preceding paragraph that the genuineness has not been doubted by the AO while framing the assessment under section 143(3) of the Act except denying the exemption claimed under section 54F of the Act which is contrary to stand of the revenue as discussed above. Thus on this count only, the assessee cannot also be denied the benefit of exemption under section 54F of the Act. Hence, the ground of appeal of the Revenue is dismissed and the ground of appeal of the assessee is allowed. 16. The next issue raised by the Revenue is that the learned CIT(A) erred deleting the addition of Rs. 37,10,739/-in part made by the estimation of profit from work contract instead of confirming the same in entirety. 17. The assessee during the year entered into labour contracts with two parties namely M/s Ketan Construction Ltd and M/s Aroma Realities Ltd and shown gross receipt of Rs. 7,96,55,053/-. The assessee also claimed to have entered into sub- contract with 36 other parties for the supply of labour against which it claimed direct expenses of Rs. 4,48,76,620/-. The AO during the assessment proceeding observed certain fact detailed as under: ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 22 - Direct expenses being under the head Depart labour were incurred in cash - All the subcontractor raised single bill at the end of the year and all the bill raised were in similar format. - Payment with respect to subcontract to almost all the parties are outstanding or paid only in part. As such in the year under consideration payments were made only to 3 sub-contractor and subsequently to the 9 sub-contractors in the month of November 2011 whereas the payment to 21 parties are still outstanding i.e. after the period of 2 years from the date of issuance of bill and 3 year from the date of project started. - Most of the subcontractor were not filling returns of income and those who filed returns of income were showing very low worth. - As per labour contract, the construction work of M/s Ketan Construction Ltd was carried out at Nasik Maharastra but subcontractor who carried out the work for the assessee were from Ahmedabad. Similarly construction work of M/s Aroma Realities Ltd carried out at Naroda and Asalai Ahmadabad District but subcontractor employed for that purpose were from Baroda or Anand. This practice of the assessee was very unusual. - Notice under section 133(6) issued to most of the subcontractor were not found existent at the given address and in some cases return unserved. The assessee was asked to produce them but failed to do so. Thereafter inspector deputed by his office and inspector in his/her report also submitted that most of the parties were not existent on the given address. - Statement of the assessee under section 131(1) of the Act recorded where admitted that he never visited Nasik construction site. With respect to payment of Rs. 2.86 crore being depart labour for work at Nasik stated that cash was withdrawn in Ahmadabad and sent to Nasik by employing services of angadia but no detail of angadia was provided. - The assessee submitted two work contract executed with M/s Ketan Construction Ltd dated 1 st December 2010 in the name of the assessee and a firm based in Mumbai in which assessee is partner for single project. But no specific work entrusted to either party thus, it was not clear how both the ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 23 parties executed the work. It was not explained when work was awarded vide letter dated 1 st December 2010 then how assessee incurred expenses from the month of August 2010. 18. Thus, the AO in view of the above was of the opinion that the books of accounts of the assessee are not reliable and accordingly rejected the book result under section 145(3) of the Act. Thereafter, the AO estimated the profit from work contract at Rs. 95,58,606/- being net profit margin of 12% on total receipt and made addition of Rs. 89,05,774/- after adjusting income of Rs. 6,52,832/- declared by the assessee from impugned labour contract. 19. On appeal by the assessee the learned CIT(A) after considering the facts in totality restricted the estimation of profit to the extent of 7% of total receipt by observing as under: 6.2 Decision: I have considered the facts mentioned in the assessment order and the submissions of the appellant carefully. The appellant has submitted that during the course of the assessment proceedings he has completely discharged the onus of proving the sub contract work by not only giving the name, address, PAN of sub contractor but also furnished details of payment and TDS there on. The A.R. of the appellant also argued that the appellant was earlier "AA" rated government contractor and has very rich and wide experience of carrying out the work awarded to him by M/s Ketan construction limited and M/s Aroma Realities Limited. The A.R. of the appellant also contended that there is specific agreement between him and M/s Ketan Construction Limited. During the course of appellate proceedings the appellant has furnished work completion certificate of both the companies as an additional evidences which has been admitted under rule 46A of the Act. There are two certificates filed by Ketan Construction Ltd. and Aroma Realities Pvt. Ltd. (PP-14- 15/Additional evidence) evidencing work done of Rs.6,01,01,000/- and Rs.1,45,00,000/- respectively. Further these two contractors have sub-contracted the work and affidavits of sub-contractors are filed (PP-16-53/Additional evidence) as under: ShriPravinR. Patel dtd. 26.11.2015 Shri Girish M. Patel Dtd. 26.11.2015 Shri Bhupendra Manibhai Patel dtd. 26.1.2015 Shri NikulkumarMaheshbhai Patel dtd. 26.11.2015 Shri Ashwinkumar Harmanbhai Patel dtd. 26.11.2015 Shri KaushalkishoreD. Yadav dtd. 29.10.2015 Shri Hitesh S. Thakor dtd. 29.10.2015 / ' Shri Kamleshbhai B. Boranya dt. 29.10.2015 Shri Janvedasing R. Yadav dtd. 29.102.2015 ''V ShriArishrtS. Patel dtd. 29.10.2015 Shri Minesshkumar H. Patel dtd. 29.10.2015 > Shri Sateeshkumar R. Yadav dtd. 29.10.2015 ShriKartikM Gediiay dtd. 29.10.2015 Shri Girish B. Savaj dtd. 29.10.2015 t Shri Bhavesh B. Savaj dtd. 29.10.2015 Shri Ghanshyambhai S, Patel dtd. 29.10.2015 ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 24 Shri Ssmbhubhai K. Desai dtd. 2&:10.2015 Shri Arpit Suryakant Patel dtd. 290.2015 Shri Suryakant R. Patel dtd. 29.10.2015 i Shri Jatin Gordhanbhai patel dtd. 29.10.2015 \ Shri Himanshu R. Shykla'dtd. 29.10.2015 ShriAlpesh B. Patel dtd. 29.10.2015 Shri Hitendra Rasiklal dtd. 29.10.2015 Shri Mansukhbhai B. Boraniya dtd. 29.10.2015 Shri Sakraji B. Thakordtd. 29,10.2015 Shri Patel Pareshbhai Jashbhai dtd. 29.10.2015 Shri Narendra H. Patel dtd. 29.10-2015 Shri Rajeshabhai Nanera dtd. 29.10.2015 Shri Parmar Balvantbhai Keshavlal dtd. 29.10.2015 Shri Parmar Balvantbhai Keshavlal dtd. 29.10.2015 Shri Umeshbhai A. Patel dtd. 29.10.2015 Shri Ashabhai V. Patel dtd. 29.10.2015 Shri Samir Nagjlbhai Patel dtd, 29.10.2015 Shri Vishanu T. Mistry dtd. 29.10.2015 Shri Vinodbhai Govindbhai Varma dtd. 29.10.2015 Shri Rajeshkumar Dahyabhai dtd. 26.11.2015 Shri Shambhu Kamshrbhai Desai dtd. 26.11,2015 The above affidavits are seen and they are properly registered documents. Although contents of above affidavits not doubted by the AO during remand proceedings, but AO has limitations in undertaking verification of full expenditure over extended period of time. Therefore, the argument of the AO appears partly correct as complete verification is not possible. 1 I have considered the above facts and all the record furnished by the appellant. Looking to the previous records of the appellant, it is seen that the appellant is infact A-rated government contractor and as per the records he is also associated with Mumbai Mahanagar Palika and other government agencies as well as companies for carrying out the various civil and labour contract work under his partnership firm at Mumbai. During the appellate proceedings, the appellant has also furnished the ledger account of all sub contractors. It is observed that the appellant has deducted the tax from the payment made to the various sub-contractors and also out of 34 contractors he has made payment to 15 subcontractors. It is therefore not doubted that no payment has been made to the sub contractor as pointed out by the A.O. Further, during the course of the appellate proceedings the appellant has furnished affidavits of various sub contractors as additional evidence which has been admitted as under rule 46A of the Act. Affidavits of the parties were placed on record and the contents of the said affidavits have remained uncontroverted. The same was not disproved or found to be false. If that be so Hon'ble Gujarat High Court in the case of Glass Line Equipment 253 ITR 454 has held that when affidavit was not controverted, it has to be taken as accepted. From the perusal of the work completion certificate, copy of work agreement furnished by the appellant, details of payment made to the sub contractor by the appellant and IDS made thereon, the argument of the appellant is partly correct though the GP on such adventures have to be examined separately so as to rule out any wrong doing with the comment that 12% net profit as computed by the AO is on higher side in this kind of trade. Only the net profit embedded in the gross unaccounted receipts can be taxed as has been held in the case of CIT Vs. Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (Guj.) wherein the Hon'ble High court of Gujarat has held that :- "in absence of any material on record to show that there was any unexplained investment made by the assesses which was reflected by the alleged unaccounted sales the finding of ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 25 the Tribunal that only the gross profit on the said amount can be brought to tax does not call for any interference." Similarly the facts of the case of CIT vs. Samir Synthetics Mill [2010] 326 ITR 410 (Guj.) are that as a result of search by the Excise Department in the business premises of the appellant, various discrepancies were noted in the production of the appellant. The appellant could not even be able to reconcile the production, sales and the closing stock although the specific opportunity was provided by the Assessing Officer. Accordingly addition to the appellant's income was made on account of suppression of sale consideration. It was held by the Tribunal as under; "Under these circumstances, we agree with t the Commissioner of Income-tax (Appeals) that the assessee failed to explain the suppression of production of18,8Q,500/- meters of cloth. , We a/so fully agree that any addition that is to be made is not in respect of the sale consideration but only in respect of the profit. As in this case no evidence has been brought out on record which may prove that the assessee has claimed all the expenses in the profit and loss account it is a case only of suppression of the sale consideration. In our opinion, irf this regard, the judgment of foe jurisdiction al High Court in the case of CIT vs. President Industries [2002} 258 ITR 654 (Guj.) is fully applicable." In another'case of CIT Vs. Bholanaih Polyfab Pvt Ltd. - (2013) 40 Taxmann 494(Guj), Hon'ble Gujarat High Court has held "the facts were that suppliers were not found at their addresses, A.O. disallowe'd as bogus purchases. Though purchases were made from bogus parties, purchases themselves were not bogus as entire quantity was not sold. Only profit margin embedded in such purchases would be subject to tax and not entire purchases, held in the order." In view of ratio laid down by Hon'ble Gujarat High Court the addition was justified on account of suppression of the contract receipts if only but only to the extent of profit. Under these facts and circumstances of the case, a fair ratio has to be determined out of such claim. Hon'ble Karnataka High Court in the case of Shankar Khandsari Sugar Mills Vs. CIT 193 ITR 669 (Kar.) has observed that "In the absence of any prejudice to the revenue, and the basis of the tax under the Act being to levy tax, as far as possible, on the real income, the approach should he liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the Income-tax Officer could have done, the appellate authority also could do." Therefore, it is concluded that it is unfair to make addition of Rs.89,05,774/-. I have examined the profit ratio of the appellant in the contract receipts and the figures are as under: A.Y. Contract Receipt (Rs.) Gross Profit (Rs.) G.P. Ratio (%) Net Profit N.P. Ratio (%) 2007-08 34299588 2614864 7.62 1835000 5.35 2008-09 35545934 2755467 7.75 1437917 4.05 2009-10 115834570 11845375 10.23 6558470 5.66 2O10-11 166318227 17460351 10.50 12431899 7.47 2011-12 124568956 10163237 8.16 8209006 6.59 20 12-1 3 54473100 4020702 7.38 The NP ratio of 5.35% for A.Y.2007-08 was accepted by the department vide order u/s.143(3) dated 07.12.2009. During the examination of assessment record it is found that the claims of appellant have also been accepted in a routine manner for A.Y.2010-11 u/s.143(3) dated 30.01.2013. There is change in the business set up from A.Y.2012-13 as ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 26 the proprietorship has got converted into partnership firm. Nonetheless, the percentage of NP is in A.Y.2007-08 to A.Y.2012-13 is in the range of 4.05 % to 7.47% giving rise to meridian value at 5.76%. Even the average of assessment year 2009-10 to A.Y.2012-13 is at 6.78%. In the circumstances, I Estimate the addition on estimation basis @ 7% which appear to me as justified and shall meet the ends, of justice. Therefore, the addition of Rs.51,95,035/- is hereby confirmed. The appellant get relief of Rs.37,10,739/- The ground No.3 of appeal is partly allowed. 20. Being aggrieved by the order of the learned CIT (A) both the Revenue and the assessee are in appeal before us. The Revenue is in appeal against the restriction of addition by estimating profit from 12% to 7% whereas the assessee is in appeal against the addition sustained by the CIT(A). The relevant ground of appeal of the assessee in ITA no. 1908/Ahd/2018 reads as under: That the Ld.CIT(A) erred in law and on the facts of the case in partly confirming the order of the AO on account of estimation of Net Profit @ 7% which came to Rs.51,95,035/- instead of actual profit of Rs.25,70,879/- earned by the appellant. 21. The learned DR and the learned AR before us vehemently supported the order of the authorities below to the extent favourable to them. 22. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO rejected the books of accounts after invoking the provisions of section 145(3) of the Act and estimated the net profit at 12% of gross receipt against the project executed by the assessee which was scaled down by the learned CIT(A) to 7% of the gross turnover. Before us, the assessee has not challenged the action of the authorities below with respect to the rejection of the books of accounts made by them under the provisions of section 145(3) of the Act. In simple words the decision of the authorities below for rejecting the books of accounts has reached to the finality and no interference to this effect is required to be made. 22.1 It is the trite of law that once the books of accounts have been rejected, the only resort available to the revenue is to determine the income of the assessee in the manner provided under section 144 the Act to the best of the judgment. The Hon'ble Supreme Court in Kachwala Gems v. Jt. CIT [2007] 288 ITR 10/158 Taxman ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 27 71 held that rejection of books of account under section 145 justified and best judgment assessment under section 144 of the Act needed. 22.2 Similarly the Hon'ble Bombay High Court in Bastiram Narayandas v. CIT [1994] 210 ITR 438/74 Taxman 454 also held that rejection of books of account justified under section 145 and best judgment assessment under section 144 needed. 22.3 The next controversy arises how to make the best judgement in the manner provided under section 144 of the Act after rejecting the accounts under the provisions of section 145(3) of the Act. When the books are rejected, a lump sum addition is made to the original return of income. Such addition may be based on estimate of turnover and profit rate or disallowance of claims, expenditure, etc. as held by the Hon’ble Supreme court in case of CIT v. Pilliah & Sons [1967] 63 ITR 411(SC). 22.4 Further in the case of Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524, the Supreme Court had this to say : " . . .the authority making a best judgment assessment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case......."(p. 530) 22.5 From the above discussion, it can be opined that best judgment assessments cannot be based on wild guess, rather it should be based on some materials available on hand relating to the assessee which should be taken into account and that too after providing the opportunity of being heard to the assessee as well as considering the provisions of the Act and Rules of Income Tax Rules. After rejecting book results, the Assessing Officer has to determine the income in reasonable and scientific manner after considering the results/ performance of the earlier years or some comparable cases. In holding so we referred the judgment of ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 28 co-ordinate bench of Jodhpur Tribunal in case of Sriram Jhanwarlal v. ITO [2005] 98 TTJ (Jodh.) 639. The relevant observation is extracted as under: After rejecting the book results, the AO does not get unfettered powers to make assessment at any income. He is supposed to be guided either by the previous results of the assessee or some comparable cases. In the instant case, the AO has allowed deduction of direct expenses at 75 per cent of the gross receipts without any cogent material. His ad hoc estimate of expenses divorced from the relevant facts cannot be upheld. 22.6 Now coming to the facts of the present case, the AO has estimated the income @ 12% of gross receipt against the project executed by the assessee on adhoc basis. However the learned CIT(A) found that the income estimated by the AO is on a bit higher side. Thereafter, the learned CIT(A) estimated the net income at 7% of gross receipt based on the NP ratio declared by the assessee for A.Y. 2007- 08 to 2012-13 which was ranging between 4.05 to 7.47%. 22.7 Now the controversy arises for our adjudication what rate should be adopted for working out the net profit embedded in the impugned gross receipts. In our considered the view, the average profit declared by the assessee in the last immediate three preceding years can be adopted as the parameter for determining the income of the assessee after rejecting the books of accounts. In holding so, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in case of Kiran industries Pvt Ltd (supra) Tax Aappeal No. 449 of 2011 where it was held as under: Having perused the documents on record with the assistance of the learned counsel for the revenue, we notice that the Tribunal had though confirmed the view of the revenue authorities with respect to the rejection of the books of accounts of the assessee did not accept the re-computation of higher rate of gross profit on the premise that the average gross profit rate of last three years immediately preceding the year under consideration came to 14.79%. On such basis, the Tribunal found that the claim of gross profit rate @ 15.27% cannot be stated to be low. On such basis, the assesee’s appeal was allowed. We are of the opinion that the findings of the Tribunal are based on evidence on record and are purely factual in nature. The Tribunal after taking into account relevant materials, came to the conclusion that a certain rate of gross profit presented by the assessee was acceptable. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 29 22.8 For this purpose, we have referred the net profit declared by the assessee in different assessment years which has already been tabulated in the order of the learned CIT-A and reproduced in the preceding paragraph. From the impugned table, we note that there is increasing trend in terms of the percentage of net profit over the gross receipt as evident from the details of different financial years. Accordingly, we are of the view that the profit estimated at the rate of 7% by the learned CIT-A is reasonable in the given facts and circumstances. At this juncture, we note that the assessee has already declared net profit ratio at 6.59% for the year under consideration. Thus, the difference between the rate of profit declared by the assessee viz a viz estimated by the learned CIT-A stands at .41% only (7% minus 6.59%). Accordingly, we restrict the enhancement of income by .41% of the gross receipts as discussed above. Hence, the ground of appeal of the revenue is partly allowed and the ground of appeal of the assessee is dismissed. 23. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made under section 68 of the Act on account unsecured loan of Rs. 3,56,62,494/- 24. During the assessment proceeding the AO found that the assessee has received unsecured loan from several parties. On question the assessee also furnished details such as PAN, ROI, Balance sheet, Bank statement, confirmation etc. in majority cases however the no detail furnished with regard to certain parties detailed below. 25. The assesse from the party namely “J.B. & Sons” received interest free loan of Rs. 2.3 Crores but no detail except PAN was provided. On verification of ITD data base it was found the impugned party have not filed return of income. Thus the AO held that the genuineness of transaction and creditworthiness not established. 25.1 Likewise the assessee in the year has received interest free loan of Rs. 15 lakh, 25 lakh and Rs. 86,62,294/- from the parties namely Lalbhai L Desai, Nayan ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 30 Amin and Real Venture General Trading respectively. But no detail provided by the assessee. Therefore the AO held that the identity, credit worthiness and genuineness of transaction not established. 26. Hence, the AO in view of the above made an addition of Rs. 3,56,62,494/- under section 68 of the Act on account unsecured loan from above mentioned parties. 27. Aggrieved assessee preferred appeal to the learned CIT(A). 28. Before the learned CIT(A) the assessee furnished copy of confirmation, ID proof, ROI and bank statement in case of all the parties and contended that the amount were received through banking channel. It was further submitted that in case of J.B. & Sons only an amount of Rs. 1.8 crore received as such the cheque of Rs. 50 Lakh not cleared. Further out of Rs. 1.8 crore an amount of Rs. 40 lakh was repaid in the year under consideration. Accordingly, the assessee prayed that the nous cast under section 68 of the Act has been discharged and no addition is required. 29. The learned CIT(A) after considering the facts in totality partly deleted the addition made by the AO by observing as under: The onus has been discharged by the appellant by submitting all possible details. The confirmations have been filed giving PAN No. of the creditors. The creditworthiness of the creditor(s) cannot be decided by the AO of the appellant. In fact, the AO of appellant can get the matter investigated through the AO of the creditors as he was in possession of full details during remand proceedings. The AO of appellant cannot become AO of the creditors. It is not the case of AO that the impugned amount is appellant's own money generated out of books of account and the same is introduced in its books of accounts through bogus creditors. If that is so, what evidences AO has collected to place it on record. Once confirmations have been filed, further action, if any, is required to be taken in case of creditor and not in case of appellant. Explanation about 'source of source' or 'origins of origin' cannot be asked from the appellant while making inquiry under section 68 as per ratio laid down in the case of DCIT v. Rohini Builders (2002) 256 ITR 360 (Guj): "Mere identification of the source of the creditors even without evidence as to the nature of the income could justify acceptance, where the assesseee has given the GIR number / PAN of the creditor and also shows that the amounts were received by account payee cheques. It was further held that it is not necessary, that there should be an explanation as to the ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 31 source of the money on the part of the creditors in every case." Reliance is also placed on another case i.e. CIT vs. Dharamdev Finance Pvt. Ltd. 43 Taxmann 395 (Guj.) wherein it is held, "No addition on account of cash credits could be made, where assesses had given PAN of creditors, their confirmations and their bank statements which established their creditability". There are other case laws supporting the case of the appellant as under: i) Murlidhar Lahorimal Vs. CIT 280 ITR 512 (Guj.) ii) CIT Vs. Pragati Co-op. Bank Ltd. 278 ITR 170 (Guj.) iii) CIT Vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) iv) CIT vs. Sanjay K. Thakkar Tax Appeal Nos.524 of 2004, 525 and 526 of 2004 and 579 to 583 of 2003 dated 12-9-2005 (Guj. HC) v} ITO Vs Kailpar Credit & Mercantile Pvt. Ltd. in ITA No.421/Ahd/2008 (ITAT, And.) I am not inclined to accept the findings of the A.O. Appellant can't be even punished for default, if any, of related party as it has been held in CIT Vs. CARBO IND HOLD LTD 244 ITR 0422 (Cal) such as "if share broker, even after issue of summons does not appear, for that reason, the claim of assessee should not be denied, especially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker failed to appear, assessee should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied." The plethora of evidences such as bank details on record cannot be ignored. The conditions to invoke provisions of section 68 are nonexistent after remand report process. In view of facts of the case and the ratio laid down by case laws (Supra), the addition made by the AO of Rs.3,51,62,494/- u/s, 68 of the I. T. Act, 1961 is hereby deleted. The addition of Rs.5,00,000/- taken from Lalbhai Desai is hereby confirmed. The ground No.4 of appeal is accordingly partly allowed. 30. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 31. The learned DR and the learned AR before us vehemently supported the order of the authorities below to the extent favourable to them. 32. We have heard the rival contentions of both the parties and perused the materials available on record. The provision of section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries under section 68 of the Act by the Hon’ble Calcutta High Court in the case of CIT Vs. Precision finance (p) Ltd reported in 208 ITR 465 wherein it was held as under: “It was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 32 account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, it was to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine.” 32.1 Now, 1 st we proceed to understand the identity of the party. The identity of the party refers to the existence of such party which can be proven based on the evidences. As such the identity of a party can be established by furnishing the name, address and PAN detail, bank details, passport and other details of the Government agencies. 32.2 The next stage comes to verify the genuineness of the transaction. Genuineness of transaction refers what has been asserted is true and authentic. A genuine transaction must be proved to be genuine from all prospective and not merely on paper. The documentary evidences should not provide a mask to cover the actual transaction or designed in way to present the transaction as true but the same is not. Genuineness of transaction can be proved by submitting confirmation of the party along details of mode transaction but merely showing transaction carried out through banking channel is not sufficient enough. As such, the same (genuineness) should also be proved by circumstantial/ surrounding evidences as held by the Hon’ble supreme court in case of Durga Prasad More reported in 82 ITR 540 and in case of Smt. Sumati Dayal reported in 214 ITR 801. 32.3 The last stage comes to verify the creditworthiness of the parties. The term creditworthiness as per Black Law Dictionary refers as: "creditworthy, adj. (1924) (Of a borrower) financially sound enough that a lender will extend credit in the belief default is unlikely; fiscally healthy-creditworthiness. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 33 32.4 Similarly in The New Lexicon Webster's Dictionary, the word "creditworthy" has been defined as under:- "creditworthy, adj. of one who is a good risk as a borrower." 32.5 It the duty of the assessee to establish that creditor party has capacity to advance such loan and having requisite fund in its books of account. The capacity to advance loan can be established by the showing sufficient income, capital and reserve or other fund in the hand of creditor. It is required by the AO to find out the financial strength of the creditor to advance loan with judicious approach and in accordance with materials available on record but not in arbitrary and mechanical manner. 32.6 In the light of the above discussion, we proceed to adjudicate the issue in hand. With respect to the identity of the party, we find that the learned CIT-A in his order given categorical finding that the assessee has furnished the details such as copy of ITR, copy of ledger account confirmation, bank statements, etc. From the above, there remains no doubt that the identity of the loan parties is in disputed, as the same is proved beyond doubt. 32.7 With respect to the genuineness of transaction and credit worthiness, we note that the assessee has submitted that all the transaction were carried out through banking channel and in support, it has furnished the copy confirmation and copy of bank statement showing the transaction and the same were transferred out of balance available in bank. 32.8 Be that as it may be, it is also important to note that part of the loan amount received by the assessee from the party namely “J.B. & Sons” was returned back in the year under consideration. Thus, we can assume that the impugned transaction was the business transactions between the assessee and the loan parties. We also feel pertinent to refer the judgment of the Hon’ble Gujarat high court in case CIT ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 34 vs. Ayachi Chandrashekhar Narsangji reported in 42 taxmann.com 251 where it was held as under: It is required to note that as such an amount of Rs. 1,00,00,000 vide cheque No. 102110 and an amount of Rs. 60 lakhs vide cheque No. 102111 was given to the assessee and out of the total loan of Rs. 1.60 crores, Rs. 15 lakhs vide cheque no. 196107 was repaid and therefore, an amount of Rs. 1,45,00,000 remained outstanding to be paid to IA. It has also come on record that the said loan amount has been repaid by the assessee to 'IA' in the immediately next year and the Department had accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the Tribunal has held that the matter is not required to be remanded as no other view would be possible, there was no reason to interfere with the impugned order passed by the Tribunal. [Para 6] 32.9 We also find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under: “The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.” 32.10 In view of the above and after considering the facts in totality, we are of the view that the order of the learned CIT(A) does not require any interference and therefore, we direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is hereby dismissed. 33. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 52,20,129/- made under section 41(1) being cessation of liability. 34. The AO found that there sundry creditors amounting to Rs. 59,55,129/- which were outstanding for more than 3 year. Therefore question was raised to explain the nature of creditors and why same should not be treated as cessation of liability under section 41(1) of the Act. However the assessee failed to make explanation or submission. Thus the AO in absence of explanation treated the same as income of the assessee on account of cessation of liability under section 41(1) of the Act. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 35 35. The assessee carried the matter before the CIT(A) and submitted the above creditors are against the advances made for purchase of property or personal expenses. These creditor are not arising on account of any expenditure booked in earlier year. Therefore the provision of cessation of liability does not applicable on the impugned creditors. 36. The learned CIT(A) after considering the facts in totality partly deleted the addition made by the AO by observing as under: 8.2 Decision: I have perused the submission of the appellant and I am inclined to accept the same. It is specified under section 41(1) of the Act that the assessee should have received the benefit out of such relinquishment of liability. The AR submitted that all the entries are as per books of account, running ledger account of the parties which are identified and having business relations. It was pointed out that on similar ground, the explanation was accepted in earlier years. However, I find that the credential for plot No.12 of Rs.7,35,0007- is not proved. Therefore, as per information on record I am not convinced that the contingent liability of Rs.7,35,000/-is still existing. In the circumstances_, I agree with the AO and treat that the liability of Rs.7,35,000/- has ceased to exist, therefore, the same is^ confirmed. Now, I discuss the issue relating to other 10 parties equivalent to amount of Rs.52,20,129/- . It is not the case of appellant that such liability is extinguished or the appellant has credited the same as income or directly credited in capital account. The liability is still standing in the books of account. The Hon'ble Gujarat high court in the case of commissioner of income tax Vs. Chetan Chemicals (P) Ltd. (2004) 267 ITR 770 while dealing with both section i.e. 41(1) of the IT. Act held that, "Before section 41(1) can be invoked, it is necessary that an allowance or a deduction has been granted during the course of assessment for any year in respect of loss, expenditure or trading liability which is incurred by the assesses, and subsequently, during any previous year, the assesses obtains, whether in cash or in any other manner, any amount in respect of such trading liability by way of remission or cessation of such liability. In that case, either the amount obtained by the assessee or the value of the benefit accruing to the assesses can be deemed to be the profits and gains of a business or profession and can be brought to tax as income of the previous year, in which such amount or benefit is obtained. In the facts of the case on hand, without entering into the aspect as to whether the liability to repay the loans would be a trading liability or not, it was an admitted position that there had been no allowance or deduction in any of the preceding years and, hence, there was no question of applying the provision as such. [Para 5] . It is therefore the ratio of Hon'ble Gujarat high court decision in the case of Chetan Chemical (P)Ltd. supra and case of CIT vs. Bhogilal Ramjibhai Atara where in the honourable Gujarat High Court held that Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41 (1)the Act. I find that the appellant gets support from the ratio laid down in the case laws (supra) as well as jurisdictional ITAT judgment in the case of M/s. Well Pain Engg. Co. dated 30/12/2011 and Nitin S. Garg Vs. ACIT [40 SOT 253]. In view of ratio laid down in the case laws (supra) and in the circumstances of this case, addition of Rs.52,20,129/- made by the assessing officer cannot be sustained and is, therefore, directed to be deleted. However, ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 36 addition as discussed above of Rs.7,35,000/-_ is_ confirmed u/s.41(1) of IT Act, 1961. The ground No. 5 of appeal is accordingly partly allowed. 37. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 38. The learned DR and the learned AR before us vehemently supported the order of the authorities below to the extent favourable to them. 39. We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 41(1) of the Act gives authority to the revenue to treat certain benefits enjoyed by the assessee in respect of loss, expenditures and trading obligation which were already allowed as deduction by deeming them as profit if the liability ceases to exist. On plain reading of the provisions of section 41(1) of the Act, the following conditions emerge: 1. In the course of assessment for any year, allowance or deduction has been made in respect of trading liability incurred by the assessee; 2. Subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; 3. In that situation the value of benefit accruing to the assessee is deemed to be the profit and gains of business which otherwise would not be his income; and 4. Such value of benefit is made chargeable to income tax as the income of the previous year wherein such benefit was obtained. 39.1 From the above, it is revealed that to apply the provisions of section 41(1) of the Act, the condition precedent is that there should be an allowance or deduction in the assessment for any year in respect of allowance, expenses or trading liability incurred by the assessee and thereafter in any previous year if the creditor waives ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 37 any such liability or liability to pay ceased in the eyes of law, then assessee is liable for tax under section 41(1) of the Act. 39.2 Coming to the fact of the case of hand, the liability with respect to which the AO invoked the provision of section 41(1) of the Act are claimed to be arising out of advance received against the sale of property or creditor for personal expenses. It was contended that no allowances deduction has been allowed in respect of these liability in any assessment year. The claim of the assessee was also found to be true by the learned CIT(A). Before us the learned DR also not brought any contrary material to prove otherwise. Hence concurring with the finding of learned CIT (A) we hold that the there was no allowances or deduction has been allowed to the assessee with regard to the impugned liabilities. Therefore, in our considered view the provision of section 41(1) of the Act cannot be invoked in the given facts and circumstances. In holding so we also find support and guidance from the judgment of Hon’ble Jurisdictional high court in case of CIT vs. Chetan Chemicals (P.) Ltd reported in (2004) 267 ITR 770 (Gujarat) where the Hon’ble bench held as under: Before section 41(1) can be invoked, it is necessary that an allowance or a deduction has been granted during the course of assessment for any year in respect of loss, expenditure or trading liability which is incurred by the assessee, and subsequently, during any previous year, the assessee obtains, whether in cash or in any other manner, any amount in respect of such trading liability by way of remission or cessation of such liability. In that case, either the amount obtained by the assessee or the value of the benefit accruing to the assessee can be deemed to be the profits and gains of a business or profession and can be brought to tax as income of the previous year, in which such amount or benefit is obtained. In the facts of the case on hand, without entering into the aspect as to whether the liability to repay the loans would be a trading liability or not, it was an admitted position that there had been no allowance or deduction in any of the preceding years and, hence, there was no question of applying the provision as such. 39.3 In view of the above discussion we do not find any reason to interfere into the finding of the learned CIT(A). Therefore we uphold the same and direct the AO to delete the addition made by him. Hence the grounds of appeal raise by the Revenue is hereby dismissed. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 38 40. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 24,92,862/- made by the AO treating the agriculture income as income from other sources. 41. The assessee in the year under consideration has shown gross agricultural income of Rs. 41,54,915/- and expenses of Rs. 16,62,050/-, thus declared net agricultural income 24,92,865/- only. However, the AO found that no details of agricultural activity and nature of crop produce mentioned in 7/12 extract. No evidence such as bill/voucher has been furnished in support of agricultural activity carried and expenses incurred. All the agricultural proceeds and expenses were carried out in cash only. It was not explained that how agricultural income earned on the land purchased in the year under consideration itself. The assessee in the statement recorded under section 131(1) of the Act stated that he has appointed different person to look after the agriculture activity at different location but no detail of such person was furnished. The assessee was also not able to recall their names. Accordingly, the AO proposed to treat the same as income from other sources. 41.1 The assessee in response submitted that he has been showing income from agricultural activity for last several year. The bill with regards to agricultural produced has been furnished and the income & expenditure duly recorded in cash book. It is not restricted for farmer to incur expenses or sale the agricultural produce in cash. Further the land revenue office now a days not mentioned the crop detail in 7/12 for all land. Therefore no adverse inference can be drawn on the basis of 7/12 extract. 42. The AO disagreed with the assessee and found that for immediate 2 preceding A.Ys. i.e. 2009-10 and 2010-11 agricultural income was declared at Rs. 8,17,375/ and Rs. 9,40,000/- whereas in the year under consideration, the agricultural income around of Rs. 25 lakh was furnished but no explanation submitted for such steep rise. Likewise No detail of “BHAYIO” (who was carrying ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 39 activity for the Assessee) was furnished. No land wise crop detail submitted by the assessee. It is true that dealing in cash is not restricted but same must be supported by the documentary evidences. Merely furnishing cash book and agricultural receipt does not absolve the assessee. Thus, the AO in view of the above treated the entire agricultural income for Rs. 24,92,865/- claimed by the assessee as income from other sources. 43. The aggrieved assessee preferred to appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 9.2 Decision: The submission of the appellant has been perused along with the record submitted by him. During the proceedings the appellant has also submitted affidavits of various farmers who are looking after the agricultural operations on behalf of appellant. The said evidences are submitted as additional evidences by the appellant and same are admitted under the rule 41A of the Act. The A.R. of the appellant has also contended during the proceedings that the details of crops being grown in the plots.of land are contained in 7/12 of some lands and the full details is missing for some other plots. The A.R. also argued that the appellant is having ancestral agricultural land and he is carrying on the agricultural activities since last 10 to 15 years showing agricultural income of around Rs. 10 lacs every years, he also submitted that the such agricultural income has been accepted by the department in previous year as well as in succeeding year. In support of his claim the A.R. of the appellant submitted copy of order of various assessment years. Assessment Year Agricultural income as per record Remarks 2009-10 Rs. 9,40,000/- Accepted u/s. 143(3) 2010-11 Rs. 8.17.375/- Accepted u/s. 143(1) 2011-12 Rs.24,92,865/- Under consideration 2012-13 Rs.24,93,362/- Accepted u/s.143(3) I have perused the facts as mentioned in the order by the A.O. and also the submission filed by the appellant. The contention of appellant is getting confirmed as per income tax record in chart above. The appellant has submitted that he is regularly showing the agricultural income in his return of income. However, as the land owned by him was far from the residence it is difficult for him to carry out the agricultural activities by himself. Therefore, he has given the said land to other cultivators and receives his share from the share croppers. In this case it is observed from the revenue record that the lands pertain to the agricultural land and has not lost its characteristics of an agricultural one. The fact remains that land itself had been used for agricultural purposes all along and does not lose its character if the same is used either by owner or share cropper for agricultural purposes. Further the ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 40 affidavits produced by the appellant of various farmers also prove that the agricultural activities has infact been carried out on the land of the appellant. The said fact has also been corroborated from the income tax returns of the appellant for various years and assessment order thereof. Affidavits of such persons were before AO during remand proceedings and contents of the same affidavits have remained uncontroverted. The same was not disproved or found to be false, if that be so Hon'ble Gujarat High Court in the case of Glass Line Equipment 253 ITR 454 has held that when affidavit was not controverted, it has to be taken as accepted. Further it is noted as reproduced in chart above, that an agriculture income of Rs.24,93,362/- has already been accepted by the department for immediate succeeding year i.e. A.Y.2012- 13 U/8.1430) Offa dated 31.03,2015, In view of the above submission and facts of the case I am inclined to hold that the appellant has earned agricultural income during the year and direct the AO to allow the amount of Rs. 24,92,865/- as has been claimed in the return of income. The ground No.9 of appeal is allowed. 44. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 45. The learned DR and the learned AR before us vehemently supported the order of the authorities below to the extent favourable to them. 46. We have heard the rival contention of both the parties and perused the material available on record. Admittedly the assessee has disclosed agricultural income of Rs. 24,92,865/- which was accepted by the AO. It is also an admitted fact that the assessee has shown identical amount of income in the subsequent assessment year i.e. 2012-13 which was accepted by the revenue in the assessment framed under section 143(3) of the Act. Likewise, the assessee has also been showing income from the agricultural activities since many years which was also accepted by the revenue and therefore the entire income cannot be treated as income from other sources as alleged by the AO. The affidavits were also filed by the assessee of the persons who were carrying out agricultural activity on the land held by the assessee which were accepted by the learned CIT-A. The learned DR has not brought anything on record contrary to the finding of the learned CIT-A. Thus, we do not find any reason to interfere in the finding of the learned CIT-A and thus we uphold the same. Hence the ground of appeal of the Revenue is hereby dismissed. ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 41 47. In the result, the appeal of the Revenue is partly allowed. Coming to ITA No. 1908/Ahd/2018 an appeal by the assessee 48. The assessee has raised following grounds of appeal: Being aggrieved and dissatisfied by the order dt. 09/07/2018 passed by the Id. CIT (A), the appellant begs to prefer this appeal on the following amongst other grounds; 1. That the Ld. CIT (A) erred in law and on the facts of the case in partly confirming the order of the AO in making an addition of Rs. 20,49,139/- by reducing the claim made u/s 54F of the Act. 2. That the Ld. CIT (A) erred in law and on the facts of the case in partly confirming the order of the AO on account of estimation of Net Profit @7% which came to Rs.51,95,035/- instead of actual profit of Rs. 25,70,879/- earned by the appellant. 3. Any other ground which may be urged before or during the hearing of the appeal. 49. The first issue raised by the assessee is that the learned CIT(A) erred in partly sustaining the addition on account of disallowances of exemption u/s 54F of the Act. 50. At the outset we note that the issue raised by the assessee in its ground of appeal has been adjudicated along with Revenue grounds of appeal in ITA No. 1991/Ahd/2018 which we have decided, vide paragraph no. 15 of this order in favour of assessee and against revenue. Thus, respectfully following the same the ground of appeal of the assessee is allowed. 51. The 2 nd issue raised by the assessee is that the learned CIT-A erred in estimating the net profit at the rate of 7% of the gross receipts instead of deleting the same in entirety. 52. At the outset we note that the issue raised by the assessee in its ground of appeal has been adjudicated along with Revenue grounds of appeal in ITA No. 1991/Ahd/2018 which we have decided, vide paragraph no.22 of this order against the assessee and in favour of the Revenue. For the detailed discussion, please refer ITA nos.1908& 1991/AHD/2018 Asstt. Year 2011-12 42 the relevant paragraph. Thus, respectfully following the same the ground of appeal of the assessee is dismissed. 53. In the result, the appeal of the assessee is partly allowed. 54. In the combined results, the appeals filed by the revenue and the assessee are partly allowed. Order pronounced in the Court on 09/09/2022 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 09/09/2022 Manish