Shri. N. Suryanarayana, Panaji V. Dy.Comm. Of Income Tax, Panaji

ITA 219/PAN/2013

• Counselvise Citation: 21924114 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 26-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHA DESAI LD
• Assessee Lawyers: P Y VAIDYA ADV SAMIR C ANVEKA
• Keywords: Business expenditure; Salary income; Opportunity of cross examination; Wrong claim; Assessment record; Block assessment; Commercial expediency; Onus to prove; Capital expenditure
• Section: 37(1); 69; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 219/PNJ/2013 (ASSESSMENT YEAR - 2009 - 10) SH. N. SURYANARAYANA C/O MILIND KULKARNI X - 14, 4 TH FLOOR, BLDG. A - 1, JAIRAM COMPLEX, NEUGI NAGAR, PANAJI - GOA. PAN:ABEPN0047K (APPELLANT) VS. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, PANAJI. (RESPONDENT) APPELLAN T BY : SHRI P.Y.VAIDYA, ADV . SAMIR C. ANVEKA C.A . RESPONDENT BY : SMT. ASHA DESAI, LD. DR. DATE OF HEARING : 21/08 /2014 DATE OF PRONOUNCEMENT : 30/09 /2014 O R D E R PER: D.T. GARASIA (JM) THIS APPEAL HAS BEEN FILED AGAINST THE ORDER OF THE CIT(A) - VI DATED 30 TH MAY, 2013 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE. 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) VI, BANGLORE (HEREINAFTER REFERRED TO AS CIT(A) ) VIDE ITS ORDER DATED 30 - 05 - 20 13 HAS GROSSLY ERRED BOTH IN LAW AND ON FACTS AND ON THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION OF RS. 19,76,00,000/ - ( RUPEES NINETEEN CRORES SEVENTY SIX LACS ONLY) MADE BY THE ASSESSING OFFICER AS UNEXPLAINED I NVESTMENTS OF APPELLANT U/S 69 OF THE INCOME TAX ACT. HE GROSSLY ERRED IN ACCEPTING THE TOTAL INCOME OF THE ASSESSEE AT RS. L9,56,71,121/ - ( RUPEES NINETEEN CRORES FIFTY SIX LACS SEVENTY ONE THOUSAND ONE HUNDRED TWENTY ONE ONLY) AGAINST THE DECLARED INCOME OF RS. 71,121/ - AS CONFIRMING OF SAID ADDITION OF RS.19,76,00.000/ - IS TOTALLY UNJUSTIFIED, ARBITRARY AND BASED UPON ASSUMPTIONS, SURMISES AND CONJECTURE, IT IS PRAYED THAT THE SAME MAY KINDLY BE DELETED IN FULL AS THE SAME IS BAD IN LAW. 2 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT 2. THE CIT(A) ERRED IN LAW AS WELL AS ON FACTS WHILE CONFIRMING THE ADDITIONS BECAUSE OF ALL HIS FINDING AND OBSERVATIONS AS MENTIONED IN TH E ORDER ARE PERVERSE, ARBITRARY, BASELESS AND MISLEADING. 3. THAT THE LD. CIT (A) HAS ERRED IN OVERLOOKING AND IN SUMMARILY REJECT ING THE DETAILED STATEMENT OF FACTS SUBMITTED ALONG WITH MEMORANDUM OF APPEAL, VARIOUS DOCUMENTS AND EVIDENCES PLACED IN PAPER BOOK FILED WHILE ACCEPTING THE LOP - SIDED AND FAC TUALLY INCORRECT VERSION OF THE LD. ASSESSING OFFICER. 3 . THE SHORT FACTS OF T HE CASE ARE THAT A SEARCH U/S 132 WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 09.10.2009. IN RESPONSE TO NOTICE U/S 153A, THE ASSESSEE FILED A LETTER DATED 19.08.210 STATING THAT HE DOES NOT HAVE THE ORIGINALLY/COPY OF THE ACKNOWLEDGEMENT OF TAX RETUR N FILED OR THE SALARY CERTIFICATE FOR THE SAID PERIOD AND ALSO DECLARED THAT HE HAS NOTHING ADDITIONAL TO DECLARE FOR THE PERIOD UNDER CONSIDERATION AND TO TREAT THE RETURN FILED BY HIM EARLIER AS FINAL. THE ASSESSEE HAS DECLARED THE INCOME OF RS. 2,70,10,0 01/ - WHICH IS INCLUSIVE OF AGRICULTURAL INCOME OF RS. 1,15,000/ - . THE ASSESSEE WAS IN SERVICE OF GOA AND HE TOOK VOLUNTARY RETIREMENT AND HE WAS IN REAL ESTATE BUSINESS. THE ASSESSEE HAS ALSO CARRIED OUT CERTAIN LAND TRANSACTIONS IN MAHARAS H TRA ALSO. 3. 1. THE ASSESSMENT WAS COMPLETED BY ASSESSING OFFICER AT THE TOTAL INCOME OF RS. 22,23,56,874/ - AFTER MAKING AN ADDITION OF RS. 19,50,00,000/ - BEING EXPENDITURE DISALLOWANCE ON THE INCOME RETURN OF RS. 2,68,95,001/ - THE ASSESSEE IN HIS RETURN OF INCOME CLAIMED A SUM OF RS. 19.50 CRORE AS COMPENSATION STATED TO BE PAID/PAYABLE TO FOUR PARTIES AS UNDER: SL. NO. NAME OF THE PARTIES AMOUNT 01 M/S TANVI FINCAPS PVT. LTD, 6,85,00,000 02 M/S. MAHIMA DEVELOPERS & BUILDERS LTD. 4,00,00,000 03 M/S. CHIT R AKOOT METAL LTD. 3,65,00,000 04 M/S. PCN INVESTMENT PVT. LTD. 5,00,00,000 THE ASSESSEE CLAIMED THAT HE HAS ENTERED INTO AN MOU ON 04.04.2008 WITH THE ABOVE 4 COMPANIES, FOR PROFIT SHARING AND FOR THE SALE OF LANDS IN MAHARASTRA FOR 3 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT WHICH HE HAD RECEIVED A SUM OF RS. 50,000/ - EACH FROM THE COMPANIES ON THE DATE OF SIGNING THE MOUS AS A TOKEN OF ACKNOWLEDGING THE SIGNING OF THE MOUS. IT WAS ALSO CLAIMED THAT THE SAID LANDS IN KAHARASTRA WERE SOLD TO M/S BLACK BERRY REALTORS PVT LTD, M/S. MANAS INFRATECH, M/S DUCAT PROP BUILD PVT. LTD., M/S. GREAT REAL CON. PVT. LTD. AND M/S. SANCHAY INFRASTRUCTURE PVT. LTD. THEREFORE, THE MOUS WITH TH E 4 COMPANIES MENTIONED ABOVE WERE CANCELLED AND A COMPENSATION OF RS. 19.50 CRORE WAS PAID AS MENTIONED ABOVE, WHICH IS CLAIMED AGAINST THE INCOME OFFERED FOR TAX FOR A.Y. 2009 - 10 SUBSEQUENT TO SEARCH PROCEEDINGS. THE ASSESSING OFFICER HAS BROUGHT ON RECO RD THAT MOU STATED TO HAVE BEEN EXECUTED ON 04.04.2008 AS ALSO THE AGREEMENT FOR CANCELLATION OF SAID MOU DATED 24.08.2008 (M/S TANVI FINCAPS AND M/S PCN INVESTMENT PVT. LTD) AND 10.09.2008 (M/S. MAHIMA DEVELOPERS & BUILDERRS LTD AND M/S. CHITRAKOOT METAL LTD) ARE ALL BOGUS DOCUMENTS. THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HAS CARRIED OUT ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDING AND DETAILED FINDING OF INVESTIGA TION HAS BEEN REPRODUCED IN THE CIT(A)S ORDER WHICH READ AS UNDER: DURING T HE COURSE OF POST VERIFICATIONAL ASSESSMENT PROCEEDINGS LETTERS WERE ISSUED CALLING FOR COPIES OF RETURNS OF INCOME FILED BY THE COMPANY IN ORDER TO VERIFY WHETHER THE SAID TRANSACTIONS ARE REFLECTED THEREIN OR NOT, IN THE MEANTIME THE INVESTIGATION WING C ARRIED OUT FURTHER INVESTIGATION ON THE ISSUE AND CASE WISE FINDINGS ARE AS UNDER: IN THE CASE OF M/S.TANVI FINCAP EP) LTD., AND M/ S.MAHIMA DEVELOPERS AND BUILDERS LTD : IT IS OBSERVED THAT MR. N. SUR YAN ARAYANA HAS EXECUTED MOU WITH M/ S. TANVI FINCAP PVT. LTD, DELHI ON 04/04/2008 VIDE STAMP PAPER NO. H 302462 AND THE SAME WAS CANCELLED BY EXECUTING CANCELLATION OF MOU ON 24/08/2008 VIDE STAMP PAPER NO. H 63153. SIMILA RLY, HE HAS EXECUTED 4 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT MOU WITH M/ S. MAHIMA DEVELOPERS AND BUILDERS LTD., DELHI ON 04 /04/2008 VIDE STAMP PAPER NO. H 302453 A ND THE SAME WAS CANCELL ED BY EXECUTING CANCELLATION OF MOU ON 10/09/2008 VIDE STAMP PAPER NO. H 063149. IT IS ALSO SEEN THAT ALL THESE STAMP PAPERS WERE OF DENOMINATION OF RS. 100/ - AND WERE ISSUED ON 15/0312008 AND 20108/20 08 BY THE SAME STAMP VENDOR MR. R AJESH GOSWAM LICENCE NO .59 WHOSE STAMP IS AFFIXED ON REVERSE PAGE OF STAMP PAGES. BUT, AS PER THE EVIDENCES GATHERED FROM THE TREASURY OFFICER, GOVT. NCT OF DELHI, THE ABOVE MENTIONED STAMP PAPERS HAVE BEEN ISSUED TO SHRI . I.K.KAPOOR, LICENCE NO.264 AND NOT TO MR.RAJAT GOSWAMI AND STAMP PAPERS VIDE NOS. H 302453 & H 302462 WERE ISSUED ON 07/07/2009 AND STAMP PAPERS VIDE NOS. H 063149 & H 063153 WERE ISSUED ON 05/06/2009. FURTHER, IT IS FOUND FROM THE LETTER OF THE OFFICE O F THE DEPUTY COMMISSIONER, NORTH, NET OF DELHI THAT NO STAMP PAPERS AS MENTIONED ABOVE HAVE BEEN SOLD BY THE STAMP VENDOR MR.RAJAT GOSWAMI WHOSE LICENCE NO. IS 599 ON 15/03/3008 AND 20/08/2008. THIS IS CONFIRMED BY THE STAMP VENDOR MR. RAJAT GOSWAMI HIMSE LF WHO CATEGORICALLY DENIED TO HAVE SOLD ANY SUCH STAMP PAPERS WHICH HAVE BEEN USED FOR PREPARATION OF ALL EGED MOUS DT.04/04/2008 AND CANCELLATION OF MOUS AND STATED THAT THE HANDWRITING OF STAMP VENDOR ON THESE STAMP PAPERS IS NOT HIS OWN. IT IS ALSO EVID ENT FROM THE COPY OF STAMP ISSUE REGISTER THAT NO STAMP PAPERS OF THE VALUE OF RS. 100/ - HAVE BEEN ISSUED BY THE STAMP VENDOR MR.RAJAT GOSWAMI. THE LETTER OF THE DIVISIONAL COMMISSIONER, TREASURY BRANCH, DELHI WHICH IS A PRIMARY EVIDENCE IS AS UNDER: 5 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT 6 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT IT IS ALSO NOTICED THAT THE MOU EXECUTED ON 04/04/2008 BEARS NOS. H 302453 & H 302462, WHEREAS CANCELLATION OF M OU EXECUTED ON 24/08/2008 AND 1 0/09/2009 BEARS NOS. H 063153 AND H 063149 RESPECTIVELY. IN OTHER WORDS, S TAMP PAPERS BEARING EARLIER NOS. H 0631 53 AND H 063149 HAVE BEEN USED TO PREPARE CANCELLATIONS OF MOUS ON LA TER DATES I.E. 24/08/2008 AND 10/0 9/2009 AND STAMP PAPERS BEARING LATER NOS. H 302453 & H 302462 HAVE BEEN USED TO PREPARE MOUS ON EARLIER DATE I.E. 04/04/2008. THIS FACT INDICATES THAT T HESE SO CALLED MOUS AND CANCELLATION OF MOUS ARE FABRICATED. FURTHER, IT IS OBSERVED FROM THE STAMP OF VENDOR AFFIXED ON REVERSE PAGES OF ALL THE FOUR ABOVE MENTIONED STAMP PAPERS THAT THE PARTICULARS HAVE BEEN WRITTEN IN BLACK INK IN THE SAME HANDWRITING . IT IS ALSO SEEN THAT THERE IS SPELLING MISTAKE IN THE ADDRESS OF MR. N . SURYANARAYANA, WHERE COOPERATIVE SOCIETY HAS BEEN WRITTEN IN PLACE OF COOPERATIVE SOCIETY AND THERE IS GRAMMATICAL ERROR OF USING THE WORD HER HEIRS IN PLACE OF HIS HEIRS AFTE R THE NAME OF MR. N. SUR YANARAYANA. THESE DISCREPANCIES ARE NOTED IN BOTH THE MOUS DATED 04/04/2008 AND MOUS FOR CANC ELLATION DATED 24/08/3008 AND 10/0 9/2008. IT IS ALSO OBSERVED THAT ALL THE FOUR INSTRUMENTS HAVE BEEN WITNESSED BY THE SAME WITNESSES WITHO UT MENTIONING THEIR ADDRESSES AND THESE WITNESSES WERE NOT KNOWN TO MR. ANII KUMAR (DIRECTOR OF M/S, TANVI FINCAP PVT. LTD.) AND MR. NISHANT SHARMA (DIRECTOR OF M/S.MAHIMA DEVELOPERS AND BUILDERS LTD.) AND ARE STATED TO BE ARRANGED BY MR. SURYANARAYANA. FR OM THIS, IT IS CLEAR THAT ALL THE ABOVE MENTIONED STAMP PAPERS APPEAR TO HAVE BEEN PROCURED ON THE SAME DAY AND THE DATE OF ISSUE HAS BEEN MENTIONED AS PER CON VENIENCE OF MR. N.SURYANARAYANA. IT IS ALSO CLEAR THAT ALL THE FOUR INSTRUMENTS HAVE BEEN PREPAR ED ON THE SAME COMPUTER AND ON THE SAME DAY. IN ADDITION, SEVERAL DISCREPANCIES HAVE BEEN NOTED IN THE STATEMENT DATED 09/04/2010 OF MR.ANIL KUMAR (DIRECTOR OF M/S.TANVI FINCAP PVT. LTD.) AND THE STATEMENT DATED 05/04/2010 OF MR.NISHANT SHARMA (DIRECTOR O F M/SMAHIMA DEVELOPERS AND BUILDERS LTD.). BOTH OF THEM STATED THAT ORIGINAL MOUS DATED 04/04/2008 WERE RETURNED TO MR. SURYANARAYANA, BUT THE SAME WERE FOUND IN POSSESSION IN THE OFFICE OF MR. ANIL KUMAR, DIRECTOR OF M/S. TAN VI FINCAP PVT. LTD. BOTH, ALS O, DENIED TO HAVE ENTERED INTO MOUS FOR CANCELLATION DATED 24/08/2008 AND 10/09/2008 RESPECTIVELY, BUT THE SAME DOCUMENTS HAVE BEEN IMPOUNDED IN ORIGINAL FROM THE OFFICE OF M/S. TAN VI FINCAP PVT. LTD. ON CONFRONTING THE SAME, MR.ANIL KUMAR FAILED TO OFFER ANY SATISFACTORY 7 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT EXPLANATION. THIS SHOWS THAT ALL THESE MOUS AND CANCELLATION OF MOUS ARE MANAGED AFFAIRS OF MR.N.SURYANARAYANA AND THESE COMPANIES NEVER INTENDED TO BUY ANY LAND SUBJECT TO ABOVE MENTIONED TRANSACTIONS AND APPEAR TO HAVE PROVIDED ACCOMMOD ATION ENTR IES TO MR. N. SUR YANARAYANA ENABLING HIM TO CLAIM THE EXPENSES. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THE EVIDENCES GATHERED ESTABLISH THAT MOUS DATED 04/04/2008 AND CANCELLATION OF MOUS DATED 24/08/2008 AND 10/09/2008 ARE FABRICATED AND MANUFACTURED BY MR. N.SURYANARAYANA WITH THE STAMP PAP ERS PURCHASED FRAUDULENTLY ON 05/0 6/2009 AND 17/07/2009 AND FRAUDULENT MISUSE OF STAMP OF VENDOR MR.RAJAT GOSWAMI WITH THE MAIN INTENTION OF M AKING FALSE CLAIM OF PAYMENT OF COM PENSATION RS .6. 85 CRORE T O M/S. TAN VI FINCAP PVT. LTD. AND RS . 4 CRORE TO M/S. MAHIMA DEVELOPERS AND BUILDERS LTD. AND THUS EVADING TAXES. IN THE CASE OF M/ S.CHITRAKOOT MET ALS LTD. (NOW KNOWN AS M/S.APPLE ROLLING MILLS LTD. ): IT IS OBSER VED FROM THE FILE FOLDER CONTAINING LOOSE SH EETS FROM I TO 17 IM POUNDED VIDE SL . NO. SRK/ B&D/LMP - 1 ON 25/06/2010 THAT MR. N. SUR YAN ARAYANA HAS EXECUTED MOU WITH M/ S. CHITRAKOOT METAL LTD., HOSUR ON 04/04/2008 VIDE STAMP PAPER NO. H 302452 AND THE SAME WAS CANCELLED BY EXE CUTING CANCELLATION OF MOU O N 1 0/09/2008 VIDE STAMP PAPER NO. H 063147. IT IS ALSO SEEN THAT BOTH THESE STAMP PAPERS WERE OF DENOMINATION OF RS. 100/ - AND WERE ISSUED ON 15/03/2008 AND 20/08/2008 BY THE SAME STAMP VENDOR MR. RAJESH GOSWAMI, LICENCE NO .59 WHOSE STAMP IS AFFIXED ON REVERSE PAGE OF STAMP PAGES. BUT, AS PER THE EVIDENCES GATHERED FROM THE LETTER OF THE OFFICE OF THE DEPUTY COMMISSIONER, NORTH, NCT OF DELHI (VIDE AL - COPY OF LETTER OF S.D.M., O/O.THE DC, NORTH, NCT OF DELHI DT.08/04/2010 ANNEXED TO THE EN QUIRY REPOR T IN THE CASE OF M/S. TAN VI FINCAP PVT. LTD.) THAT NO STAMP PAPERS HAVE BEEN SOLD BY THE STAMP VENDOR MR. RAJAT GOSWAMI, WHOSE LICENCE NO. IS 599, ON 15/03/3008 AND 20/08/2008. FURTHER, THE STAMP VENDOR MR. RAJAT GOSWAMI HIMSELF HAS CATEGORICALLY DENIED TO HAVE SOLD ANY STAMP PAPERS OF RS. 100/ - ON 15/03/3008 AND 20/08/2008, WHICH HAVE BEEN USED FOR PREPARATION OF ALLEGED MOUS DT.04/04/2008 AND CANCELLATION OF MOUS. IT IS ALSO EVIDENT FROM THE COPY OF STAMP ISSUE REGISTER (VIDE 0 - COPY OF STAMP ISSUE REG ISTER PROVIDED BY THE DY. 8 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT COMMISSIONER, NORTH, NCT OF DELHI ANNEXED TO THE ENQUIRY REPORT IN THE CASE OF M/ S. TANVI FINCAP PVT. LTD.) THAT NO STAMP PAPERS OF THE VALUE OF RS. 100/ - HAVE BEEN ISSUED BY THE STAMP VENDOR MR. RAJAT GOSWAMI. FURTHER, IT IS OBS ERVED FROM THE STAMP OF VENDOR AFFIXED ON REVERSE PAGES OF ALL THE TWO ABOVE MENTIONED STAMP PAPERS (NOS. H 302452 AND H 063147) THAT THE PARTICULARS HAVE BEEN WRITTEN IN BLACK INK IN THE SAME HANDWRITING. IT IS ALSO SEEN THAT THERE IS SPELLING MISTAKE IN THE ADDRESS OF MR. N. SURYANARAYANA, WHERE COOPERATIVE SOCIETY HAS BEEN WRITTEN IN PLACE OF COOPERATIVE SOCIETY AND THERE IS GRAMMATICAL ERROR OF USING THE WORD HER HEIRS IN PLACE OF HIS HEIRS AFTER THE NAME OF MR. N. SURYANARAYANA. THESE DISCREPANCI ES ARE NOTED IN BOTH THE MOUS DATED 04/04/2008 AN D MOUS FOR CANCELLATION DATED 10/0 9/2008. IT IS ALSO OBSERVED THAT BOTH THE INSTRUMENTS HAVE BEEN WITNESSED BY THE SAME WITNESSES WITHOUT MENTIONING THEIR ADDRESSES AND STRANGELY THEIR SIGNATURES ON BOTH THE SE INSTRUMENTS WITH A GAP OF 5 MONTHS APPEAR TO HAVE BEEN MADE FROM THE SAME PEN. FROM THIS, IT IS CLEAR THAT BOTH THE ABOVE MENTIONED STAMP PAPERS APPEAR TO HAVE BEEN PROCURED ON THE SAME DAY AND THE DATE OF ISSUE HAS BEEN MENTIONED AS PER CONVENIENCE OF MR. N.SUIYANARAYANA. IT IS ALSO CLEAR THAT BOTH THESE INSTRUMENTS HAVE BEEN PREPARED ON THE SAME COMPUTER AND ON THE SAME DAY. IT IS ALSO NOTICED THAT THE MOU EXECU TED ON 04/04/2008 BEARS NO. H 302452, WHEREAS CANCELLATION OF MOU EXECUTED 10/09/2009 BEARS NO. H 063147 RESPECTIVELY. IN OTHER WORDS, STAMP PAPER BEARING EARLIER NO. H 063147 HAS BEEN USED TO PREPARE CANCELLATION OF MOU ON LATER DATE I.E. 10/09/2009 AND STAMP PAPER BEARING LATER NO. H 302452 HAS BEEN USED TO PREPARE MOU ON EARLIER DATE I.E. 04/ 04/2008. THIS FACT INDICATES THAT THESE SO CALLED MOUS AND CANCELLATION OF MOUS ARE FABRICATED. SHRI KUNAL GA RG, DIRECTOR AND SIGNATORY OF MO U AND CANCELLATION OF MOU ON BEHALF OF M/S. CHITRAKOOT METAL LTD. HAS DEPOSED V IDE HIS STATEMENT RECORDED ON 01/0 7 /2010 THAT ALL THE AFFAIRS OF THE COMPANY ARE LOOKED AFTER BY HIS BROTHER SHRI.ASHISH GARG AND HE SIGNED THESE MOUS AS PER INSTRUCTIONS OF SHRI.ASHISH GARG. VIDE STATEMENT RECORDED ON 01/07/2010, SHRI. ASHISH GARG STATED THAT THE COMPENSATION OF RS. 3.65 C RORE RECEIVED FROM SHRI. N. SURYANARAYANA HAS BEEN SHOWN AS INCOME ON ACCRUAL BASIS WHICH WAS ERRONEOUSLY INCLUDED IN THE SALE ACCOUNT DURING THE F. Y.2008 - 09 AND 9 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT SUBSEQUENTLY, THE AMOUNT OF RS.3.65 CRORE WAS TRANSFERRED TO M/S.ASTHA TRADE LINK PVT. LTD., K OLKATA AS ADVANCE TOWARDS PURCHASE OF RAW MATERIALS. BUT, IT IS SEEN FROM THE STATEMENT OF PRODUCTION & SALES (ANNEXURE - L TO ASHISH GARGS STATEMENT) THAT COMPENSATION OF AMOUNT OF RS.3.65 CRORE RECEIVED IS NOT REFLECTED. FURTHER, THE AMOUNT OF RS.3.65 CRO RE PAID TO M/S.ASTHA TRADE LINK PVT. LTD. AS ADVANCE FOR PURCHASE OF RAW MATERIALS DURING JULY 2009 IS SHOWN UNDER SUNDRY CREDITORS, INSTEAD OF SHOWING IT AS A TRADE ADVANCE WHICH NEEDS TO BE VERIFIED. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THE EVIDE NCES GATHERED ESTABLISH THAT MOUS DATED 04/04/2008 AND CANCELLATION OF MOUS DATED 10/09/2008 ARE FABRICATED AND MANUFACTURED BY MR. N .SURYANARAYANA WITH THE STAMP PAPERS PURCHASED FRAUDULENTLY AND FRAUDULENT MISUSE OF STAMP OF VENDOR MR.RAJAT GOSWAMI WITH THE MAIN INTENTION OF MAKING FALSE CLAIM OF PAYMENT OF COMPENSATION RS.3.65 CRORE TO M/S.CHITRAKOOT METAL LTD. AND THUS EVADING TAXES. IN THE CASE OF M/S. P C N INVESTMENT PVT. LTD. (NOW CALLED M/ S. SARADA MELCAST PVT. LTD. ): IT IS OBSERVED FROM THE ENCLOSURES TO THE ENQUIRY REPORT IN THE CASE OF M/ S. PCN INVESTMENT PVT. LTD., KOLKATA THAT MR. N. SURYANARAYANA HAS EXECUTED MOU WITH M/S. PCN INVESTMENT PVT. LTD., KOLKATA ON 04/04/2008 AT DELHI, VIDE STAMP PAPER NO. H 302454 AND THE SAME WAS CANCELLED BY EXECUTING CANCELLATION OF MOU ON 24/08/2008 VIDE STAMP PAPER NO. H 063152. IT IS ALSO SEEN THAT BOTH THESE STAMP PAPERS WERE OF DENOMINATION OF RS. 100/ - . FURTHER, IT IS OBSERVED FROM THE ABOVE MENTIONED MOU AND CANCELLATION OF M OU THAT THERE IS SPELLING MISTAKE IN THE ADDRESS OF MR. N .SURYANARAYANA, WHERE COOPERATIVE SOCIETY HAS BEEN WRITTEN IN PLACE OF COOPERATIVE SOCIETY AND THERE IS GRAMMATICAL ERROR OF USING THE WORD HER HEIRS IN PLACE OF HIS HEIRS AFTER THE NAME OF MR . N. SURYANARAYANA. THESE DISCREPANCIES ARE NOT ED IN BOTH THE MOUS DATED 04/04/2 008 AND MOUS FOR CANCELLATION DATED 24/08/2008. IT IS ALSO OBSERVED THAT BOTH THE INSTRUMENTS HAVE BEEN WITNESSED BY THE SAME WITNESS AND STRANGELY THEIR SIGNATURES ON BOTH THE SE INSTRUMENTS WITH A GAP OF 4 MONTHS APPEAR TO HAVE BEEN MADE FROM THE SAME PEN. FROM THIS, IT IS CLEAR THAT BOTH THE ABOVE MENTIONED STAMP PAPERS APPEAR TO HAVE BEEN PROCURED ON THE SAME DAY AND THE DATE OF ISSUE HAS BEEN MENTIONED AS PER 10 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT CONVENIENCE OF MR. N. SURYANARAYANA. IT IS ALSO CLEAR THAT BOTH THESE INSTRUMENTS HAVE BEEN PREPARED ON THE SAME COMPUTER AND ON THE SAME DAY. IT IS ALSO NOTICED THAT THE MOU EXECUTED ON 04/04/2008 BEARS NO. H 302454, WHEREAS CANCELLATION OF MOU EXECUTED 10/09/2009 BEARS NO. H 063152 RESPECTIVELY. IN OTHER WORDS, STAMP PAPER BEARING EARLIER NO. H 063152 HAS BEEN USED TO PREPARE CANCELLATION OF MOU ON LATER DATE I.E. 24/08/2009 AND STAMP PAPER BEARING LATER NO. H 302454 HAS BEEN USED TO PREPARE MOU ON EARLIER DATE I.E . 04/04/2008. THIS FACT INDICATES THAT THESE SO CALLED MOUS AND CANCELLATION OF MOUS ARE FABRICATED. SHRI. DEEPAK HADA, DIRECTOR IN MIS. SARADA MELCAST PVT. LTD. STATED VIDE HIS STATEMENTS DATED 15.04.2010, 16.04.2010 AND 22.04.2010 DEPOSED THAT MAIN BUSI NESS OF THIS COMPANY IS CASTING OF MS INGOTS AND ISOLATED TWO REAL ESTATE TRANSACTIONS INCLUDING PRESENT ONE WITH SHRI N. SURYANARAYANA, AS THE REAL ESTATE TRANSACTIONS WERE NOT DONE IN THE REGULAR COURSE OF BUSINESS, THE INCOME SO DERIVED MUST HAVE BEEN S HOWN SEPARATELY IN THE RETURN OF INCOME. IT IS SEEN FROM THE PROFIT & LOSS ACC OUNT FOR THE A. Y. 2009 - 10 IF M/ S. SARADA MELCAST PVT. LTD. THAT AN AMOUNT OF RS. 6,75,29,876/ - HAS BEEN CREDITED AS CONTRACT REPUDIATION COMPENSATION UNDER THE HEAD SALES AND OTHER INCOME AND AS PER SHRI. DEEPAK HADA, THIS INCLUDES AMOUNT OF RS. 5 CRORE RECEIVED FROM SHRI N . SURYANARAYANA AND RS. 1,75,29,876/ - RECEIVED FROM THE DELHI LAND DEAL. BUT, OVER ALL PROFIT S HOWN BY THE COMPANY IS ONLY RS.7,80, 50S/ - . IN OTHER WORDS, PROFIT OF RS. 6,75,29,876/ - FROM THE REAL ESTATE TRANSACTIONS HAS BEEN ABSORBED BY CREATING LOSS IN THE IRON MANUFACTURING BUSINESS, FURTHER. SHRI DEEPAK HADA HAS SUBMITTED THAT HE HAS NEVER VISITED GOA AND SEEN THE LAND TINDER DISCUSSION FOR WHICH THE C OMPANY HAS CLAIMED TO HAVE RECEIVED CONTRACT REPUDIATION OF RS.SCRORE FROM SHRI N. SURYANARAYANA. HE HAS ALSO CLAIMED TO HAVE PLANNED A PROJECT ON THE SAID LAND WITH THE INVESTMENT OF RS.2S CRORE, STRANGELY WITHOUT HAVING ANY PROJECT REPORT. THOUGH, AS P ER PARA 4 OF MOU DATED 04/04/2008, THE COMPANY DEPOSITED A CHEQUE FOR RS. SO LAKHS WITH SHRI N. SUR YANARAYANA, SHRI DEEPAK HADA HAS CATEGORICALLY DENIED TO HAVE PAID ANY SUCH SUM. HE HAS ALSO SUBMITTED THAT THE ONE SHRI NIRMAL GOENKA WHO DEALS WITH TRADING IN CHEMICALS HAS ALLEGEDLY ACTED AS A MIDDLE MAN IN THIS LAND TRANSACTION, WHICH IS STRANGE. THUS, FACTS STATED IN THE MOU ARE FALSE AND THE 11 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT SAID LAND DEAL APPEARS TO BE NON - GENUINE IMPLYING THAT M/S.PCN INVESTMENT PVT, LTD. HAS MERELY PROVIDED ACC OMMODATIO N ENTRIES TO SHRI N.SUR YARIARAYANA. FROM THE ABOVE DI SCUSSION, IT IS CLEAR THAT THE EVIDENCES GATHERED ESTABLISH THAT MOUS DATED 04/04/2008 AND CANCELLATION OF MOUS DATED 10/09/2008 ARE FABRI CATED AND MANUFACTURED BY MR. N . SURYANARAYANA WITH THE MAIN INT ENTION OF MAKING FALSE CLAIM OF PAYMENT OF COMPENSATION RS.S CRORE TO M/S.PCN INVESTMENT PVT. LTD. AND THUS EVADING TAXES. FROM THE ABOVE DISCUS SION, IT CAN BE SEEN THAT MR. N. S URYANARAYANA HAS EXECUTED MOUS DATED 04/04/2008 AND CANCELLATION OF MOUS DAT ED 20/08/200 & 24/8/2008 & 10109/2008 WITH M/S. TANVI FINCAP PVT. LTD. , M/S. MAHIMA DEVELOPERS AND BUILDERS LTD., M/S. CHITRAKOOT METAL LTD. AND M/ S.PCN INVESTMENT PVT. LTD. VIDE SERIES OF STAMP PAPER OF VALUE OF RS. 1001 - AND THE DETAILS ARE TABULATED AS UNDER: S NO. S TAMP PAPER NO. MOU/CANCELLATION OF MOU WITH THE COMPANY DATE OF MOU CANCELLATION OF MOU DATE OF ISSUE AS PER VENDORSS STAMP NAME OF THE STAMP VENDOR AS PER VENDORS STAMP DATE OF ISSUE AS PER TREASURY OFFICER, GOVT. OF NCT OF DELHI NAME OF THE STAMP VENDOR AS PER TREASURY OFFICER, GOVT. OF NCT OF DELHI MOU 1 H302452 M/S. CHITRAKOOT METAL LTD. 04/04/2008 15/03/2008 RAJAT GOSWAMI 2 H302453 M/S. MAHIMA DEVELOPERS AND BUILDERS LTD. 04/04/2008 15/03/2008 RAJAT GOSWAMI 17/07/2009 I.K.KAPOOR 3 H302454 M/S. PCN INVESTMENT PVT. LTD. 04/04/2008 4 H302462 M/S. TANVI FINCAP PVT. LTD. 04/04/2008 15/03/2008 RAJAT GOSWAMI 17/07/2009 I.K.KAPOOR CANCELLATION OF MOU 5 H063147 M/S. CHITRAKOOT METAL LTD. 10/09/2008 20/08/2008 RAJAT GOSWAMI 6 H063149 M/S. MAHIMA DEVELOPERS AND BUILDERS LTD. 20/08/2008 20/08/2008 RAJAT GOSWAMI 05/06/2009 I.K.KAPOOR 7 H063152 M/S. PCN INVESTMENT PVT. LTD. 24/08/2008 8 H063153 M/S. TANVI FINCAP PVT. LTD. 24/08/2008 20/08/2008 RAJAT GOSWAMI 05/06/2009 I.K.KAPOOR 12 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT T HUS, MR. N. SURYANARAYANA HAS EXECUTED MOUS WITH THE ABOVE 4 COMPANIES ALLEGEDLY ON 04/04/2008 WITH THE STAMP PAPERS ALLEGEDLY ISSUED BY THE STAMP VENDOR M R. RAJAT GOSWAMI WITH LICENCE NO .59 ON 15/03/2008. FURTHER, HE HAS ALSO EXECUTED CANCELLATION OF MOUS WITH THE SAME 4 COMPANIES ALLEGEDLY ON 20/8/2008, 24/8/2008 AND 10/9/2008 WITH THE STAMP PAPERS ALLEGEDLY ISSUED BY THE SAM E STAMP VENDOR MR. RAJAT GOSWAMI ON 20/08/2008. BUT, IT IS PROVED OTHERWISE BY THE EVIDENCE GATHERED FROM THE TREASURY OFFICER, GOVT. NCT OF DELHI. VIDE LETTER IN F .NO. 1(MISC)/DT/DC/2008 - 09/825 DATED 25/03/2010 WHEREIN IT IS STATED THAT STAMP PAPERS VIDE NOS. H 302453 & H 302462 WERE ISSUED MUCH LATER ON 07/07/2009 AND STAMP PAPERS VIDE NOS. H 063149 & H 063153 WERE ISSUED ON 05/06/2009 BY SHRI. I .K.KAPOOR WITH LICENCE NO.264 AND NOT BY MR.RAJAT GOSWAMI. IN OTHER WORDS, IT PROVES THAT MR.N .SURYANARAYANA HAS P URCHASED THESE STAMP PAPERS ON 05/06/2009 AND 07/0 7/2009 AND FABRICATED THE MOUS AND CANCELLATI ON OF MOUS WITH THE BACK DATES AS EARLY AS 04/04/2008, 20/8/2008, 24/8/2008 AND 10/9/2008. THIS SHOWS THAT THESE MOUS AND CANCELLATION OF MOUS WERE AFTER THOUGHT ON THE PART OF MR N SURYANARAYANA TO MAKE A CLAIM OF PAYMENT OF COMPENSATION AND THUS AVOID TA X PAYMENT. FURTHER, INFORMATION OBTAINED FROM THE OFFICE OF THE DEPUTY COMMISSIONER, NORTH, NCT OF DELHI STATES THAT NO SALE OF STAMP PAPERS HAS BEEN SHOWN TO HAVE BEEN MADE ON 15/03/2008 & 20/08/2008 BY SHRI. RAJAT GOSWAMI AND THE SAME IS CONFIRMED BY THE S TAMP VENDOR MR.RAJ AT GOSWAMI HIMSELF WHO CATEGORICALLY DENIED TO HAVE SOLD ANY SUCH STAMP PAPERS WHICH HAVE BEEN USED FOR PREPARATION OF ALLEGED MOUS DT. 04/04/2008 AND CANCELLATION OF MOUS AND STATED THAT THE HANDWRITING OF STAMP VENDOR ON THESE STAM P PAPERS IS NOT HIS OWN. IT IS ALSO EVIDENT FROM THE COPY OF STAMP ISSUE REGISTER THAT NO STAMP PAPERS OF THE VALUE OF RS. 100/ - HAVE BEEN ISSUED BY THE STAMP VENDOR MR.RAJAT GOSWAMI. THIS CLEARLY PROVES THAT MR. N. SURYANARAYANA HAS FRAUDULENTLY OBTAINED THESE STAMP PAPERS AND USED THE STAMP OF MR. RAJAT GOSWAMI TO FABRICATE THE REQUIRED DOCUMENTS FOR MAKING FALSE CLAIM OF PAYMENT OF COMPENSATION. IT IS ALSO NOTICED THAT THE MOUS EXECUTED ON 04/04/2008 BEARS NOS. H 302452, H 302453, H 302454 & H 302462, WHEREAS CANCELL ATION OF MOUS EXECUTED ON 2 0/08/2008, 2 4/0 8/2008 AND 10/09/2009 BEARS NOS. H 063147, H 13 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT 063149, H 063152 AND H 063153 RESPECTIVELY. AS DISCUSSED EARLIER, AS PER THE EVIDENCES GATHERED FROM THE TREASURY OFFICER, GOVT. NCT OF DELH I THE STAMP PAPERS VIDE NOS, H 302 453 & H 302462 WERE ISSUED ON 0 7/07/2009 AND STAMP PAPERS VIDE H 063149 & H 06315 3 WERE ISSUED ON 05/06/2009. IN OTHER WORDS, STAMP PAPERS BEARING EARLIER NOS. H 063152 SERIES ISSUED ON 05/06/2009 HAVE BEEN USED TO PREPARE CANCELLATI ONS OF MOUS ON LATER DATES I.E. 20/08/2008, 24/08/2008 AND 10/09/2009 AND STAMP PAPERS BEARING LATER NOS. H 302452 SERIES ISSUED ON 0 7/0 7/2009 HAVE BEEN USED TO PREPARE MOUS ON EARLIER DATE I.E. 0 4/04/2008. THIS FACT INDICATES THAT THESE SO CALLED MOUS AND CANCELLATION OF MOUS ARE FABRICATED. FURTHER, IT IS OBSERVED FROM THE STAMP OF VENDOR AFFIXED ON REVERSE PAGES OF MOST OF THE ABOVE MENTIONED STAMP PAPERS THAT THE PARTICULARS HAVE BEEN WRITTEN IN BLACK INK IN THE SAME HANDWRITING. IT IS ALSO SEEN THA T THERE IS SPELLING MISTAKE IN THE ADDRESS OF MR. N.SURYANARAYANA, WHERE COPERATIVE SOCIETY HAS BEEN WRITTEN IN PLACE OF COOPERATIVE SOCIETY AND THERE IS GRAMMATICAL ERROR OF USING THE WORD HER HEIRS IN PLACE OF HIS HEIRS AFTER THE NAME OF MR.N. SURY ANARAYANA. THESE DISCREPANCIES ARE NOTED IN BOTH THE MOUS DATED 04/04/2008 AND MOUS FOR CANCELLATION DATED 24/08/3008 AND 10/09/2008. FROM THIS, IT IS CLEAR THAT ALL THE ABOVE MENTIONED STAMP PAPERS APPEAR TO HAVE BEEN PROCURED ON THE SAME DAY AND THE DATE OF ISSUE HAS BEEN MENTIONED AS PER CONVENIENCE OF MR. N. SURYANARAYANA. IT IS ALSO CLEAR THAT ALL THE INSTRUMENTS HAVE BEEN PREPARED ON THE SAME CORN P LITER AND ON THE SAME DAY. MR. N. SURYANARAYANA CLAIMED THAT HE RECEIVED CASH OF RS.50,000/ - FROM EACH OF THE ABOVE FOUR COMPANIES ON DATE OF SIGNING THE MOUS AS A TOKEN OF ACKNOWLEDGING THE SIGNING OF THE MO US. MR N SURYANARAYANA HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT. THE ALLEGED RECEIPT OF ABOVE CASH OF RS 50,000 FROM THE ABOVE FOUR COMPANIES IS NOT S UPPORTED BY ANY INDEPENDENT AND VERIFIABLE EVIDENCE, IT IS STRANGE THAT THE ABOVE FOUR COMPANIES WHICH ALLEGED TO HAVE INVESTED RS 2,00,000 IN CASH SH OULD GET COMPENSATION OF RS 19, 50,00,000/ - THUS, THE ASSESSING OFFICER HAS MADE THE ADDITION OF RS. 19.50 CRORES IS TOTAL WRONG CLAIM OF THE ASSESSEE, THEREFORE, IT WAS DISALLOWED. 14 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT 4 . THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS CONFIRMED THE ADDITION BY OBSERVING AS UNDER: FROM THE ABOVE FACTS, IT IS CLEAR THAT THE DOCUMENTS PRODUCED TO SUPPORT THE PAYMEN T OF COMPENSATION I.E. THE MOU FOR TRANSFERRING THE RIGHTS TO THE SAID 4 PARTIES AS WELL AS THE CANCELLATION AGREEMENTS AGREEING ON THE COMPENSATION AMOUNT, BOTH THE DOCUMENTS IN RESPECT OF THE 4 PARTIES ARE NON GENUINE DOCUMENTS CREATED ONLY FOR THE PURPO SE, OF THE SAID CLAIM I.E. TO I.E. TO SHOW THAT A TRANSACTION WAS ENTERED INTO, WHICH HAS BEEN CANCELLED AND FOR WHICH THE PAYMENTS HAVE BEEN MADE AND TO SHOW THAT THESE ARE ALLOWABLE EXPENSES TOWARDS THE INCOME EARNED. THE ONLY OTHER EVIDENCE CLAIMED BY THE APPELLANT IS THAT HE RECEIVED CASH OF 50,000/ - EACH FROM THE ABOVE 4 PARTIES ON THE DATE OF SIGNING THE MOUS. IT IS NOTED THAT THESE AMOUNTS ARE CASH RECEIPTS FOR WHICH NO OTHER EVIDENCE IS AVAILABLE. MOREOVER, THESE CASH RECEIPTS WERE NOT FOUND OR AVA ILABLE AT THE TIME OF SEARCH. NONE OF THE AGREEMENTS, MOUS OR CANCELLATION AGREEMENTS WERE FOUND EITHER (UNDERSTANDABLY SO, THESE BEING FORGED AND BACK DATED DOCUMENTS AS DETAILED IN THE ASSESSMENT ORDER.) AS RECORDED EARLIER, IT IS ONLY SUBSEQUENT TO SEAR CH AND SUBSEQUENT TO THE NOTICES ISSUED THAT THE APPELLANT HAS DISCLOSED THIS INCOME, WHEREAS EARLIER HE HAS MAINTAINED THE STAND THAT HE HAD ONLY SALARY INCOME AND NO OTHER DETAILS OTHER THAN SALARY CERTIFICATE WAS RELEVANT. UNDER SUCH CIRCUMSTANCES, WHER E THE APPELLANT AND THE SAID 4 PARTIES HAVE CLEARLY FORGED AND PRODUCED BOGUS DOCUMENTS IN RESPECT OF AN AGREEMENT OF 19.5 CRORES AS DETAILED ABOVE, THIS RECEIPT OF 50,000/ - EACH FROM THE 4 COMPANIES IN CASH WITHIN THE SAME F.Y. IS NOT A VERIFIABLE EVIDENC E AND IN ANY CASE CANNOT FORM THE SOLE EVIDENCE FOR THIS TRANSACTION. IT IS RELEVANT TO NOTE THAT THE SAID PAYMENT OF COMPENSATION HAS NOT BEEN MADE DURING THE F.Y., IN FACT THESE PAYMENTS HAVE BEEN CLAIMED TO HAVE BEEN MADE ONLY IN F.Y. 2009 - 10 (RELEVANT TO A.Y. 2010 - 11). IT IS ALSO RELEVANT TO NOTE THAT AS PER THE APPELLANT, THE AGREEMENT HAS BEEN ENTERED INTO ON 04.04.2008 AND CANCELLED IN AUGUST AND SEPTEMBER 2008. WITHIN THIS PERIOD OF 7 MONTHS, FOR AN INVESTMENT OF A MERE 2 LAKHS CLAIMED TO HAVE BEE N INVESTED, A COMPENSATION OF 19.50 CRORE CLAIMED BY THE APPELLANT UNDER THE CIRCUMSTANCES OF THE CASE, IS TOTALLY NOT EXPLAINABLE. THE CLAIM OF THE APPELLANT IS IT IS TO BE NOTED HERE THAT THE SAID MOUS WERE ENTERED INTO WITH THE FOUR COMPANIES FOR THE REQUIREMENT OF FUNDS. THE APPELLANT IS DEALING IN THE BUSINESS OF REAL ESTATE AND THE APPELLANT HAD DISPOSED OF HIS RIGHT IN THE PROPERTIES TO FOUR COMPANIES NAMELY TANVI FINCAP PVT LTD, CHITRKOOT METALS LTD. MAHIMA DEVELOPERS AND BUILDERS LTD AND PCN INV ESTMENTS LTD. BY THESE MOUS THE APPELLANT HAD ENTERED INTO AN UNDERSTANDING WITH THE FOUR COMPANIES TO ACQUIRE AND ALSO TO DEVELOP THE SAID PROPERTIES BY SHARING THE COST IN THE RATIO OF 10:90. IT WAS 15 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT ALSO CATEGORICALLY AGREED BETWEEN THE PARTIES TO SHARE THE PROFITS OF THE EITHER FINAL PRODUCT OR BY WAY OF SALE OF PROPERTY TO THIRD PARTY IN THE RATIO OF 10:90 AND 20:80 RESPECTIVELY. THIS UNDERSTANDING WAS ARRIVED AT THAT POINT OF TIME DUE TO HEAVY REQUIREMENT OF FUNDS FOR COMPLETION OF PROJECT. IT WAS A CO MMERCIAL DECISION TAKEN BY THE APPELLANT WHOLLY AND EXCLUSIVELY FOR THE SMOOTH RUNNING OF THE BUSINESS. IT WAS HELD BY HONBLE APEX COURT IN THE CASE OF CIT V CHANDULAL KESHAVIAL & CO., (1960) 38 ITR 601 (SC) THAT A PAYMENT OR EXPENDITURE INCURRED FOR THE PURPOSE OF TRADE OF THE ASSESSEE, IT IS DEDUCTIBLE EVEN IF IT MAY BRING BENEFIT TO THE THIRD PARTY. THEREFORE THE CONTENTION OF THE LD. A.O. THAT THE EXPENDITURE SEEMS UNREASONABLE IS MISPLACED AND IS BASED ON ASSUMPTIONS, SURMISES AND CONJECTURES. FURTH ER, IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE IS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF BUSINESSMAN AND NOT REVENUE THE SAME WAS HELD IN THE CASE OF CIT V SALES MAGNESITE (P) LTD (1955) 214 ITR .1. IN THE INSTANT CASE BY PAYING THE COMPENSATION CHARGES OF RS 19.50 CRORES APPELLANT EARNED RS 8.39 CRORES WHILE IF THESE COMPENSATION PAYMENTS WERE NOT MADE APPELLANT WOULD NOT HAVE EARNED EVEN A SINGLE PENNY, THIS CONTENTION OF THE LD AO THAT THE PAYMENT OF RS. 19.50 CRORES IS UNREASONABLE IS WRONG AS THE APPELLANT STOOD AT GAIN BY MAKING THE COMPENSATION PAYMENTS. (AS EXTRACTED FROM THE APPELLANTS SUBMISSIONS IN PAPER BOOK AT PAGE 4ASIS SUPPLIED), IT IS OBSERVED THAT : - (1) A RECEIPT OF A MERE RS. 2 CRORE FOR A PROPERTY WORTH MORE THAN RS. 50 CRORE (AS PER PROFIT & LOSS ALC) COULD IN NO WAY BE THE REASON FOR ENTERING INTO MOUS F OR RE QUIREMENT OF FUNDS AS CLAIMED IN EXTRACT ABOVE. (2) ALSO, AS PER THE SAID MOUS , THE CHEQUE PAYMENT OF 50 LAKHS EACH AS GUARANTEE IS ALSO FOUND TO BE NOT CORRECT AS DETAILED IN THE ASSESSMENT ORDER. (3) EVEN AS PER THIS FORGED DOCUMENT, AS CLAIMED AB OVE (REFER ABOVE EXTRACT), THE SHARING OF PROFITS IN CASE OF SALE TO 3RD PARTY (AS IS THE CASE), WOULD BE 20:80 WHEREAS IN THIS CASE THE APPELLANT ADMITTEDLY HAS PAID 19.50 CRORE , WHEREAS HE HAD EARNED ONLY 8.49 CRORE. THIS IS CERTAINLY NOT 20:80 BUT 70:30 AND CERTAINLY NOT EXPLAINABLE BY THE APPELLANTS OWN LOGIC. THIS CLAIM DEFIES ANY LEGAL BUSINESS INTENT. MERELY BECAUSE THE PARTIES CONCERNED AGREE THAT THE CLAIM OR SUBSEQUENT PAYMENT IS TOWARDS COMPENSATION WILL NOT MAKE IT A COMPENSATION OR ALLOWA BLE EXPENDITURE UNLESS IT IS BACKED BY BELIEVABLE, RELIABLE EVIDENCE. IN THIS CASE, THE FACTS OF THE CASE SPEAK OTHERWISE. ON SUCH FACTS AND CIRCUMSTANCES, I HOLD THAT THIS CLAIM OF COMPENSATION OF 19.50 CRORES IS NOT AN ALLOWABLE EXPENDITURE AGAINST TH E APPELLANTS INCOME AS IT DOES NOT RELATE TO THE INCOME EARNED. THERE IS NO QUESTION OF ANY COMPENSATION PAYMENT WHETHER PAID OR PAYABLE AS PER THE FINDINGS ABOVE. EVEN IF THESE AMOUNTS HAVE BEEN PAID TO THE SAID PARTIES IN THE SUBSEQUENT YEAR, THIS CANNO T BE ATTRIBUTABLE TO ANY LEGAL 16 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT PURPOSE TOWARDS THE EARNING OF THE INCOME SO EARNED BY THE APPELLANT ON ACCOUNT OF SALE OF THE SAID PROPERTIES AS CLAIMED. THIS CLAIM MADE BY THE APPELLANT IS NOT ALLOWABLE AGAINST THE INCOME OF THE APPELLANT FOR THE YEAR I N QUESTION. THE FINDING OF THE ASSESSING OFFICER IN THIS REGARD IS CORRECT AND UPHELD. THE APPEAL OF THE APPELLANT IS DISMISSED. 5 . THE LEARNED AR HAS ARGUED THE CASE EARLIER BEFORE US AS WELL AS FILED THE WRITTEN SUBMISSION BEFORE US. THE WRITTEN SUBMISSION WHICH READ AS UNDER: 1. THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS. THE PAYMENT OF COMPENSATION WAS MADE ON ACCOUNT OF COMMERCIAL EXPEDIENCY BY CHEQUE PURSUANT TO AN UNDERSTANDING WHICH THE ASSESSEE HAD. THE ASSESSEE GOT A BETTER OFFER SUBSEQUENTLY AND HENCE AGREED TO TERMINATE THE EARLIER AGREEMENT AND HENCE HAD TO COMPENSATE THEM. OTHERWISE IT WAS NOT POSSIBLE TO EXECUTE THE NEW OFFER. THE ASSESSEE HAS ALREADY ACCOUNTED FOR ENTIRE INCOME OF RS.28 CR FROM THE NEW TRANSACTION. THE RECIPIENTS HAVE ALREADY CONFIRMED THE RECEIPT OF COMPENSATION. AS FAR AS TAXABILITY OF SUCH RECEIPT IN THE HANDS OF RECIPIENTS IS CONCERNED THE A.O HAVING JURISDICTION OVER THEM CAN TAKE A APPROPRIATE VIEW ON EVALUATION OF FACTS. HOWEVER THE ASSESSEE SHOUL D NOT BE MADE TO SUFFER FOR GENUINE PAYMENT OF SUCH COMPENSATION. RELIANCE IS PLACED ON CIT V GENEISIS COMMENT (P) LTD 163 TAXMAN 482 (DEL) AND JO HN LAING INTERNATIONAL LTD V DCI T 37 TAXMANNCOM345 (DEL) THE HON BLE CALCUTTA HIGH COURT WHILE DEALING WITH A ISSUE U/S 40 A (2) (B) IN THE CASE OF DIAGNOSTICS V CIT 20 TAXMANN.COM 692 HAS TAKEN A VIEW THAT, WHERE ASSESSEE TOOK CARE TO PURCHASE MATERIALS FOR BUSINESS BY WAY OF ACCOUNT PAYEE CHEQUES FROM A THIRD PARTY AND AFTER THREE YEARS SAID THIRD PARTY DID NOT APPEAR BEFORE ASSESSING OFFICER PURSUANT TO NOTICE OR EVEN HAD STOPPED BUSINESS, CLAIM OF ASSESSEE ON THAT ACCOUNT COULD NOT BE DISCARDED AS NON - EXISTENT. RELIANCE IS ALSO PLACED ON CIT V CHANDULAL KESHAVLAL & CO 38 ITR 601 (SC) 2. REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM BUSINESSMANS POINT OF VIEW AND NOT DEPTS. POINT OF VIEW. THE ALLEGATION THAT SUCH HUGE SUM IS PAID FOR TERMINATION OF EARLIER UNDERSTANDING IS NOT RELEVANT AS THE ASSESSEE GOT A BETTER DEAL HENCE THERE WAS A BUSINESS NEED TO PAY SUCH AMOUNT. JUST BECAUSE THE AMOUNT PAID IS HUGE IT CAN NOT BE THE GROUND TO DISBELIEF THE ENTIRE TRANSACTION FOR WHI CH HUGE COMPENSATION OF RS,28.1 1 CR WAS RECEIVED. THE HONABLE DELHI HIGH COURT IN THE CASE OF CIT V DALMIA CEMENT (P) LTD 254 ITR 3 77 HAS HELD THAT, REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN ARMCHAIR OF A BUSINESSMAN OR IN POSITION OF BOARD OF DIRECTORS AND ASSUME SAID ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO CIRCUMSTANCES OF CASE 17 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT RELIANCE IS ALSO P LACED ON RAMMANOHAR SINGH V ACIT 170 TAXMAN 79 (JAB) (MAG ) WHEREIN IT WAS HELD THAT, REVENUE, THOUGH ADMITTED GENUINENESS OF TRANSACTIONS, PARTIALLY DISALLOWED CLAIM OF ASSESSEE ON GROUND THAT HE HAD MADE HIGHER PAYMENT TO ONE OF PARTIES - HOWEVER, ASSESSEE PROVED BY WAY OF SUBSTANTIAL EVIDENCES THAT BY PAYING HIGHER CHARGES, HE HAD, IN FACT, EARNED SUBSTANTIALLY WHICH COULD NOT HAVE BEEN POSSIBLE, HAD SUCH HIGHER CHARGES NOT BEEN PAID - WHETHER ON FACTS, IT COULD BE SAID THAT PAYMENTS MADE BY ASSESS EE WERE WHOLLY AND EXCLUSIVELY FOR HIS BUSINESS AND, HENCE, SAME WERE ALLOWABLE EXPENDITURE - HELD, YES RELIANCE IS ALSO PLACED ON S.A.BULIDERS V CIT 288 ITR 1 (SC) IN THE CASE OF CIT V SALES MAGNESITE (P) LTD 214 ITR 1 (BORN) IT WAS HELD THAT PAYMENT DICT ATED BY COMMERCIAL EXPIDENCY WAS ALLOWABLE. THE OFFENCE OR PROHIBITION UNDER LAW REFERRED TO IN EXPLANATION TO SECTION 37(1) SHOULD BE JUDGED WITH REFERENCE TO THE PURPOSE OF THE EXPENDITURE ON A STANDALONE BASIS DIVORCED FROM THE FULFILMENT OR OTHERWISE OF THE PROCEDURAL FORMALITIES (FOR EXAMPLE REQUIREMENTS OF COMPANIES ACT LIKE BOARDS CONSENT, GENERAL BODY APPROVAL, CENTRAL GOVTS APPROVAL) ATTACHED WITH AND NECESSARY FOR THE INCURRING OF SUCH EXPENDITURE. JAI SURGICALS LTD V ACIT 46 TAXMANN.COM 246 ( DEL) 3. THE HO N BLE DELHI HIGH COURT IN THE CASE OF CIT V AGRA BEVERAGES CORPO RATION (P) LTD 11 TAXMANN.COM 350 HAS HELD THAT CLAIM OF BUSINESS EXPENDITURE COULD NOT BE DENIED MERELY ON THE GROUND THAT THERE WAS NO WRITTEN AGREEMENT FOR THE PAYMENT. IN THE PRESENT CASE THERE IS A DOUBTFULNESS ABOUT THE AGREEMENT AND RELEVANT STAMP PAPER. HOWEVER WHEN THE PAYMENT IS GENUINELY MADE BY CHEQUE AND CONFIRMED BY THE RECEIPIENT SHOULD NOT BE DISALLOWED. 4. WHERE THE PAYMENT HAS BEEN MADE THROUGH BANKING CHANNELS A ND PARTY WAS A LSO NOT FOUND TO BE RELATED TO ASSESSEE, A.O COULD NOT TREAT EXPENSE AS BOGUS EXPENSE CIT V MUNDRA PORT AND SEZ LTD.45TAXMAN N.COM36L(GUJ) RELIANCE IS ALSO PLACED ON CIT V RAJARANI EXPORTS (P) LTD 35TAXMANN.COM 644 (CAL) TO SUMMARISE 1. THE E XPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND PAYMENT WAS MADE THROUGH BANKING CHANNEL. CASE LAW NO. 2,3,6,12 2. THE PAYMENT WAS NOT ILLEGAL OR FOR OFFENCE OR PROHIBITED BY LAW. CASE LAW NO.1,11 3. IT WAS NOT A PERSONAL OR CAPITAL EXPENDITURE AND PAYMENT WAS NOT MADE TO RELATED PARTY U/S 40(A)(2)(B). CASE LAW NO.5 4. THE PAYMENT WAS MADE OUT OF COMMERCIAL EXPEDIENCY. CASE LAW NO.9,10 18 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT 5. REASONABLENESS OF EXPENDITURE HAS TO BE JUDGED FROM BUSINESSMANS POINT OF VIEW AND NOT FROM DEPTS POINT OF VIE W . CASE LAW NO.7,8 6. THE RECIPIENTS HAVE CONFIRMED THE RECEIPT OF PAYMENT AND THE ASSESSEE HAS ALSO OFFERED THE INCOME FROM THE ENTIRE TRANSACTION. 7. TAX ASSESSMENTS OF 4 RECEIPIENTS ARE COMPLETED AND NO ADVERSE INFERENCE IS DRAWN. 8. NO INCRIMINATING DO CUMENT I MATERIAL IS FOUND TO PROVE THAT THE SAID TRANSACTION IS AN ACCOMMODATION ENTRY OR THERE IS ANY EXCHANGE OF CASH. CASE LAW NO.14 9. PROCEDURAL ASPECT SUCH AS IRREGULARITY IN STAMP PAPER SHOULD NOT AFFECT CLAIM OF OTHERWISE LAWFUL EXPENDITURE. CASE LAW NO.11,15 10. NO OPPORTUNITY OF CROSS EXAMINATION WITH REFERENCE TO STATEMENT RECORDED OF DIRECTOR OF 4 COMPANIES AND STAMP VENDORS. CASE LAW NO.4,13 5.1. T HE LEARNED AR SUBMITTED BEFORE US THAT ASSESSEE HAS ENTERED INTO MOU ON 04.04.2008 WITH FOUR COMPANIES FOR PROFIT SHARING AND FOR SALE OF LANDS IN MAHARASTRA FOR WHICH HE HAS RECEIVED AS SUM OF RS. 50,000/ - EACH FROM THE COMPANIES ON THE DATE OF SIGNING THE MOUS AS A T OKEN OF ACKNOWLEDGING THE SIGNING OF THE MOUS. THEREAFTER THE ASSESSEE WAS SOLD THIS LAND TO M/S BLACK BERRY REALTORS PVT. LTD. M/S. MANAS INFRATECH, M/S DUCAT PROP BUILD PVT LTD, M/S GREAT REAL CON. PVT. LTD. AND M/S. SANCHAY INFRASTRUCTURE PVT. LTD. AND THEREAFTER THE MOUS WITH THE FOUR COMPANIES MENTIONED ABOVE WERE CANC ELLED AND A COMPENSATION OF RS. 19.50 CRORE WAS PAID. THE ASSESSEE HAS PAID THIS COMPENSATION TO THE FOUR COMPANIES WHICH ASSESSEE HAS SOLD THIS LAND TO ANOTHER PARTIES FROM WHO HAS RECEIV ED 28 CRORES FROM NEW TRANSACTION. THE PARTIES TO WHOM THE COMPENSATION HAS BEEN PAID HAS CONFIRM BEFORE AO THAT THEY HAVE RECEIVED THE COMPENSATION FROM THE ASSESSEE . THE ASSESSEE CLAIMED THAT HE HAS EXECUTED MOU WITH M/S. CHITRAKOOT METAL LTD. AND THEREAFTER, THIS MOUS WERE CANCELLED AND ASSESSEE SUBMITTED THAT ASSESSEE HAS PAID RS. 3.65 CRORES TO CHITRAKOOT METALS. THE DIRECTOR HAS ADMITTED THAT THEY HAVE RECEIVED T HE MONEY. THERE IS NO EVIDENCE BEFORE US THAT WHATEVER MONEY ASSESSEE HAS PAID FOR COMPENSATIO N HAS BEEN RECEIVED BACK BY THE ASSESSEE, THEREFORE, NO ADDITION 19 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT CAN BE MADE IN THE HANDS OF THE ASSESSEE. THEREFORE, H E PRAY ED FOR ALLOWING THE APPEAL. THE LEAR NED AR HAS RELIED UPON FOLLOWING DECISIONS. 6 . THE LEARNED DR SUBMITTED BEFORE US THAT ASSESSEE CLAIMED THAT HE HAS PAID RS. 6.85 CRORES TO TANVI FINCAPS PVT. LTD. AND RS. 4 CRORES TO MAHIMA DEVELOPERS & BUILDERS LTD. THE ORIGINAL MOUS WERE FOUND IN POS SESSION OF SRI ANIL KUMAR (THE DIRECTOR OF TANVI FINCAPS PVT. LTD. ) BOTH OF THEM HAVE DENIED TO HAVE ENTERED TO MOU FOR CANCELLATION DATED 24.08.2008 AND 10.09.2009 RESPECTIVELY. THUS, WHEN THE DIRECTOR OF MAHIMA DEVELOPERS AND BUILDERS AND TANVI FINCAP S PVT. LTD. BOTH HAVE DENIED OF EXECUTING OF MOU, THEREFORE, HE BURDEN IS UPON THE ASSESSEE TO PROOF THAT ASSESSEE HAS EXECUTED THE MOUS WITH ABOVE PARTIES AND COMPENSA TION HAS BEEN PAID TO RS. 6.85 C RORES TO M/S. TANVI FINCAP PVT. LTD. AND RS. 4 CRORES TO M/S. MAHIMA DEVELOPERS AND BUILDERS LTD. HAS TO PROOF BY COGENT EVIDENCE. THE ASSESSEE FAILED TO PROVE THE SAME, THEREFORE, THIS EVIDENCE CANNOT BE BELIEVED. IN RESPECT OF MAKING PAYMENT TO EXECUTING MOU WITH CHITRAKOOT METALS THE ASSESSEE SUBMITTED TH AT HE HAS EXECUTED MOU WITH CHITRAKOOT METALS BUT WHEN THE DIRECTOR OF CHITRKOOT METALS WAS EXAMINED BY INVESTIGATION BEING HE HAS SUBMITTED THAT HE HAS STATED ON OATH THAT ON 01.07.2 010 A COMPENSATION OF RS. 3.65 C RORES WERE RECEIVED AND SAME WERE TRANSFERRED TO M/S. ASTHA TRADE LINK PVT. LTD., KOLK ATA AS ADVANCE TOWARDS THE PURCHASE OF RAW MATERIALS. THE INVESTIGATION WING HAS EXTRACTED THE PRODUCTION AND SALES STATEMENT WHEREIN NO SUCH AMOUNT WAS REFLECTED. DURING THE COURSE OF HEARING THE ASSESSE E DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT THIS AMOUNT HAS BEEN PAID BY THE ASSESSEE. THE SAID PARTY HAS NOT FILED ANY CONFIRMATION LETTER MOREOVER NO DOCUMENTARY EVIDENCE TO SHOW THAT THIS COMPANY HAS ACCOUNTED THIS MONEY IN HIS RETURN OF INCOME. IN RESP ECT OF MOU WITH M/S. PCN INVESTMENT PVT. LTD T HE DIRECTOR OF THE COMPANY SRI DEEPAK HADA. MR. DEEPAK HADA HAS NOT PROVED ANY EVIDENCE 20 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT BEFORE US TO SHOW THAT HE HAS ACCOUNTED THIS MONEY IN HIS BOOKS OF ACCOUNT. THE ASSESSEE HAS CREATED ALL BOGUS MOU IN TH E NAME OF M/S. TANVI FINCAP METAL LTD., M/S. MAHIMA DEVELOPERS AND BUILDERS LTD., M/S. CHITRAKOOT METAL LTD. AND M/S. PCN INVESTMENT PVT. LTD. THE INVESTIGATION WING HAS VERIFIED THE STAMP PAPER FROM THE TREASURY OFFICER AND THE STAMP PAPER NO. H302452, H 302453, H302454, H302462, H063147, H063149, H063152, H063153. THE INVESTIGATION WING HAS GATHERED THE EVIDENCE FROM TREASURY OFFICE, GOVT. NCT OF DELHI, AND WHEREIN IT WAS FOUND THAT THE STAMP PAPER WAS PURCHASED AFTER THE MOU WERE CANCELLED THAT THE MOU W AS EXECUTED ON 04.04.2008 WHEREAS THE STAMP PAPER WERE ISSUED BY TREASURY OFFICE ON 07.07.2009, THEREFORE, ASSESSEE HAS EXECUTED ALL FALSE DOCUMENTS TO CLAIM OF CANCELLATION OF MOU AND COMPENSATION PAID FOR THE MOU, THEREFORE THE ACTION OF AO AND CIT(A) IS JUSTIFIED. 7 . WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND FROM THE ASSESSMENT ORDER AND THE DOCUMENTARY EVIDENCE WHICH IN BRIEF CAN BE UNDERSTOOD FROM THIS FACTS AS UNDER: THE AS SESSEE HAS CLAIMED TO HAVE PAID COMPENSATION OF RS.19.50 CRORES TO FOUR PARTIES. SL. NO. NAME OF THE PARTIES AMOUNT 01 M/S TANVI FINCAPS PVT. LTD, 6,85,00,000 02 M/S. MAHIMA DEVELOPERS & BUILDERS LTD. 4,00,00,000 03 M/S. CHIT R AKOOT METAL LTD. 3,65,00,000 04 M/S. PCN INVESTMENT PVT. LTD. 5,00,00,000 THE ASSESSEE STATE TO HAVE BEEN ENTER ED INTO MOU ON 04.04.2008 WITH ABOVE FOUR COMPANIES FOR PROFIT SHARING SALE OF LAND IN MAHARASTRA. THE ASSESSEE HAS RECEIVED SUM OF RS. 50,000/ - EACH FROM THE COMPANIES ON THE DATE OF 21 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT SIGNING MOUS TOKEN OF ACKNOWLEDGING O F SINGING OF MOUS. THE LAND WAS SOLD TO M/S. BLACK BERRY REALTORS PVT. LTD., M/S. MANAS INFRATECH, M/S. DUCAT PROP BUILD PVT. LTD., M/S. GREAT REAL CON. PVT. LTD. AND M/S. SANCHAY INFRASTRUCTUR E PVT. LTD. THE ASSESSEE HAS RECEIVED SUM OF RS. 28 CRORES FROM THIS DETAIL OUT OF 28 CRORES, HE HAS PAID 19.50 CRORES TO ABOVE PARTIES AS COMPENSATION. 7.1. THERE WAS A SEARCH IN THE BUSINESS PREMISES OF MR. N. SURYANARAYANA AND ASSESSEE HAS EXECUTED THE MOUS WERE EXECUTED ON 04.04.2008 BEARING NO. H302452, H302453, H302454, H302462, WHERE AS THE CANCELLATION OF MOU EXECUTED ON 20.08.2008 AND 10.09.2009 BE ARING NOS. H063147, H063149, H063152 & H063153 RESPECTIVELY. AS PER THE EVIDENCES GATHERED FROM THE TREASURY OFFICE, GOVT. NCT OF DELHI, THE STAMP PAPERS VIDE NOS. H302453 & H 302462 WERE ISSUED ON 07.07.2009 AND H063149 & H 063153 WER E ISSUED ON 05.06.2009. FROM THIS DOCUMENTARY EVIDENCE IT SHOWS THAT THE CANCELLATION OF MOUS ON LATER DATES I.E. 20.08.2 008, 24.08.2008 AND 10.09.2009, THEREFORE, THIS PRIMARY EVIDENCE SHOWS THAT MOU AND CANCELLATION FABRICATED STORY. DURING THE COURSE OF HEARING BEFORE AO THE ASSESSEE IN HIS WRITTEN SUBMISSION WHICH IS REP RODUCE IN THE ASSESSMENT ORDER WHICH READ AS UNDER: TH IS HAS REFERENCE TO THE DISCUSSI ON THE UNDERSIGNED HAD WITH YOUR HONOR IN REGARD TO THE BLOCK ASSESSMENT OF SHRI SURYANARAYANA. YOUR HONO U R HAS PROPOSED TO ADD A SUM OF RS 19.50 CRORE BEING PAYMENT TO FOUR COMPANIES NAMELY MAHIMA DEVELOPERS AND BUILDE RS LTD. TANVI FINCAPS PVT. LTD., CHITRAKOOT METAL LTD., PCN INVESTMENTS (KNOWN AS SARDA MEL CAST) PVT. LTD., [HEREINAFTER IN MY SUB MISSI ON REFERRED TO AS FO UR COMPANIES] AS UNDISCLOSED IN COME OF MY DENT SHRI N. SURYANARAYANA. IN REGARD TO THE ABOVE I WISH T O SET OUT MY CONTENTIONS BUT BEFORE DOING SO IT WILL BE NECESSARY TO SET OUT THE FACTUAL MATRIX OF THE CASE. FACTS SHRI SURYANARAYANA ENTERED I NTO AN AGREEMENT FOR PURCHASE OF CERTAIN LANDS SITUATED IN VILLAGE SAGARTIRTH AND TANK, TAL UKA VENGURLA DIST SINDHUDURG. THESE LANDS ARE HEREAFTER IN THE SUBMISSION S REFERRED TO AS THE PROPERTY. THE SAID AGREEMENT FOR THE 22 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT SALE AND CONSOILDATION WAS EXECUTED ON 16TH JANUARY 2008. BY VIRTUE OF THE SAID AGREEMENT MY DENT AGREED TO PURCHASE THE VARIOUS PROPERTIES F ROM GOA DOURDA PROMOTIONS PVT . LTD AND OTHER CONSOLIDATORS, HEREINAFTER IN THE SUBMISSIONS REFERRED TO AS GDPL OF WHICH HE PAID TO GDPL A SUM OF RS. 1 CR, IN ADVANCE. ON 4TH APRIL 2008 SHRI SURYANARAYANA AGREED TO DISPOSE OF HIS RIGHTS IN THE AFORESAID P RO PERTY TO THESE FOUR COMPANIES. I N AND AROUND SEPTEMBER 2008, MY CLIENT RECEIVED A MUCH HIGHER OFFER FOR THE SAID PROPERTY FROM BLACK BERRY REALTORS PVT. LTD, MANAS INFRATECH, DUCAT PROPBUI LD PVT. LTD., GREAT REAL CON PVT. LTD. AND SANCHAY INFRASTRUCTURE PVT. LTD ALL FORMING PART OF IREO GROUP OF COMPANIES (HEREIN AFTER IN TH ESE SUBMISSIONS REFERRED TO AS IREO, IN VIEW OF THE UNDERSTANDING WITH IREO, MY CLIENT AGREED NOT TO CONCLUDE THE TRANSACTION OF PURCHASE OF PROPERTY FROM GDPL, IN RETURN FOR A COMPENS ATION TO BE PAID BY IREO TO HIM FOR RELEASING HIS RIGHTS IN THE PROPERTY. TO ENTER INTO AN AGREEMENT/ARRANGEMENT WITH IREO, THE UNDERSTANDING WITH FOUR COMPANIES HAD TO BE CANCELLED. ACCORDINGLY, MY CLIENT CANCELLED THE UNDERSTANDING WITH FOUR COMPANIES FO R AN AGRE ED COMPENSATION OF PS. 19.50 CR ORES. SUBSEQUENT TO THE CANCELLATION OF THE UNDERSTANDING WITH FOUR COMPANIES, SHRI SURYANARAYANA ENTE RED INTO AN UNDERSTANDING WITH I REO IN THE MONTH OF AUGUST/SEPTEMBER 2008. THOUGH THE AGREEMENTS AND ARRANGEMENTS FOR THE CANCELLATION OF THE UNDERSTANDING WITH THE FOUR COMPANIES AND THE SUBSEQUENT ARRANGEMENT WITH IERO WAS ENTERED INTO IN SEPTEMBER 2008, THE ACTUAL PAYMENTS TOOK PLACE IN AND AROUND MARCH / APRIL 2009. THE CANCELLATION OF THE AGREEMENT WITH FOUR COMP ANIES WAS ALLEGEDLY EXECUTED ON A STAMP PAPER WHICH WAS PURCHASED IN MARCH 2009 WHILE THE CANCELLATION WAS STATED IN THAT AGREEMENT TO HAVE BEEN EXECUTED IN SEPTEMBER 2008. BASED ON THIS DEFECT IN THE DOCUMENTATION, THE DEPARTMENT IS PROPOSING TO TREAT THE PAYMENT OF PS. 19.50 CORES TO THE FOUR COMPANIES AS A SHAM PAYMENT AND TREAT THE SA ME AS UNEXPLAINED INCOME OF MY CL IENT. MY RESPONSE THERETO IS AS FOLLOWS THE CONTENTION OF THE DEPARTMENT IS BASED ON THE FOLLOWING (A,) MY CLIENT HAS MADE A PAYMENT OF R S. 19.50 CRORE AS COMPENSATION WHEN THE ADVANCE RECEIVED FROM FOUR COMPANIES WAS ONLY RS. 2,00,000. (B) THE PAYMENT OF RS, 19.50 CRORES IN A PERIOD OF APPEARS TO BE TOO HIGH AND CONSEQUENTLY UNREASONABLE AND IRRATIONAL (C ) THE PURPORTED CANCELLATION OF THE UNDERSTANDING WAS EXECUTED ONLY IN MARCH OR APRIL 2009 WHEN IT IS STATED TO HAVE BEEN EXECUTED IN SEPTEMBER 2008, AND THEREFORE IS TO BE IGNORED AS SHAM. I NOW PROCEED TO ANSWER EACH OF THE CONTENTIONS OF THE DEPARTMENT (A) THE DEPARTMENT IS OF THE VIEW T HAT THE COMPENSATION IS UNDULY HIGH PARTICULARLY IN VIEW OF THE F ACT THAT MY CLIENT HAD RECEIVED ONLY AN ADVANCE OF RS. 2,00,000 FROM 23 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT FOUR COMPANIES. I SUBMIT THAT THE THINKING OF THE DEPARTMENT IS TOTALLY INCORRECT. IT IS PERTINENT TO NOTE THAT WHILE THE DEPARTMENT IS SEEKING TO TREAT THIS ELEMENT OF RS. 19.50 CRORES AS A SHAM AND UNBELLEVABLE ON ACCOUNT OF THE FACT THAT THE SAID FOUR COMPANIES HAD PAID ONLY A SUM OF RS.2,00,000 AS AN ADVANCE, THE DEPARTMENT IS TAXING IN ENTIRETY THE AMOUNT OF RS 28.11 CRORE RECEIVED BY MY CLIENT FROM IREC AS INCOME. IT MUST BE REMEMBERED THAT MY CLIENT HAS PAID AN ADVANCE TO GDPL OF ONLY RS 1 CRORE FOR THE ENTIRE LAND, AND STILL HAS BEEN OFFERED A SUM OF RS 28.11 CRORE BY IREO AS COMPENSATION FOR RELINQUISHING H/S RIGHTS OVER A PART OF THE PROPERTY. IT MUST BE REMEMBERED THAT MY C LIENT IS IN THE BUSINESS OF DEAL ING IN LANDS AND IN SUCH SITUATIONS WHOEVER SPOTS AN OPPORT UNITY EXPLOITS IT AND THE MERE FACT THAT THE ADVANCE RECE IVED FROM FOUR COMPANIES WAS ONLY RS. 2,00,000 CANNOT BE A YARDSTICK TO DENY OR DISBELIEVE THE FACT THA T THE COMPENSATION PAID WAS RS. 19.50 CRORE. REAL ESTATE BUSINESS IS REPLETE WITH EXAMPLES WHERE V ERY LARGE PROPERTIES HAVE BEEN BOOKED OR ARRANGEMENTS ENTERED INTO WITH A VERY SMALL TOKEN AMOUNT. CONSEQUENTLY RIGHTS ARE CREATED WHEN PARTIES AGREE TO A PARTICULAR CONSIDERATION AND THE PAYMENTS MADE AT THE TIME OF EXECUTION OF THE UNDERSTANDING MAY BE A TOKEN AMOUNT BUT THAT BY ITSELF WILL NOT IN ANY WAY COLOR OR DETRACT FROM THE RIGHT CREATED. ( B ) ANOTHER ISSUE RAISED BY THE DEPARTMENT IS THAT THE COMPENSATION PAID IS UNDUL Y HIGH, UNREASONABLE AND IRRATIONAL. IT IS SIGNIFICANT TO NOTE THAT WHILE IN APRIL 2008 SURYANARAYFRA HAD ENTERED I NTO AN UNDERSTAND I N G WITH THE FOUR COMPANIES TO ACQUIRE AND AL SO TO DEVELOP THE SAID PROPERTIES BY S HARING THE COST IN THE RATIO OF 10:90. IT WAS AL SO CATEGORICALLY AGREED BETWEEN THE PARTIES TO SHARE THE PROFITS OF THE EIT HER FINAL PRODUCT OR BY WAY OF SALE OF PROPERTY TO THIRD PARTY IN THE RATIO OF 10:90 AND 20:80 RESPECTIVELY. THIS UNDERSTANDING WAS ARRIVED AT THAT POINT OF TIME DUE TO HEAVY REQUIREMENT OF FUNDS FOR COMPLETION OF PROJECT. IF THE TRANSACTION WITH THE FOUR COMPANIES WAS TO GO THROUGH, THEN SHRI. SURYANARAYANA WOULD HAVE GAINED, ONLY IF THE PROJECT WAS COMPLETED, WHICH COULD HAVE TAKEN MANY YEARS TO COMPLE TE WITH LOT OF IN VESTMENT. IN S EPTEMBER 2008 HE RECEIVED A MUCH HIGHER OFFER AND ASSURANCE OF IMMEDIATE LIQUIDATION OF HIS IN VESTMENT IN THE PROPERTY FROM IREO. THE ONLY WAY THAT HE COUL D ACCEPT THAT OFFER WAS TO TERMI NATE OR CANCEL THE AGREEMENT OR AR RANGEMENT WITH FOUR COMPANIES. I T WAS PRUDENT BUSINESS DECISION ON HIS PART TO SELL HIS RIGHTS BY CANCELLING AND PAYING OFF THE FOUR COMPANIES, WHICH THEY READILY ACCEPTED THE O FFER. EVEN BEFORE THEY COULD IN VEST FURTHER, HE ORALLY CANCELLED THE AGREEMENT AND ASKED THEM NOT TO INVEST ANY FURTHER AMOUNTS. WHAT THE DEPARTMENT MU ST OBSERVE IS THAT BY CANCELLING THE ARRANGEMENT WITH FOUR COMPANIES MY CLIENT STOOD TO GAIN LARGELY BY RS. 8.61 CRORE. THE FACT THAT INCIDENTALLY FOUR COMPANIES AL SO GAINED WILL NOT MAKE THE TRANSACTION UNRE AL OR SHAM. THEREFORE BY CANCELLING THE ARRANGEMENT MY CLI ENT STOOD TO GAIN IN TERMS OF MONEY AND TIME. ONE MUST LO OK AT THE TRANSACTI ON IN ITS PROPER PERSPECTIVE. IF THE ARRANGEMENT WITH FOUR COMPANIES WAS NOT TERMINATED MY DENT WOULD NOT HAVE BEEN ABLE TO ENTER INTO AN ARRANGEMENT WITH I REO AND CONSEQUENTLY WOULD NOT HAVE EARNED THE INC REMENTAL REVENUE. THEREFORE FROM THE 24 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT POINT OF VIEW OF THE BUSINESSMAN WHAT HE PAID WAS IN THE CONTEXT OF WHAT HE GAINED AND THE QUANTUM WHICH WAS PAID TO FOUR COMPANIES WAS IN NO WAY DETRIMENTAL TO HIM. A PERSON WOULD PAY ANY AMOUNT PROVIDED HE GAINED SOME THING MORE IN THE ENTIRE TRANSA CTION. MY CLI ENT GAINED AND THEREFORE HE AGREED PAY THE SAID SUM. FURTHER WHAT HAS TO BE SEEN IS THE RIGHT CREATED BY THE MEMORANDUM OF UNDERSTANDING WITH FOUR COMPANIES. ONE IS TO LOOK AT THE COMPENSATION NOT IN THE LIGHT OF WHAT FOUR COMPANIES HAD PAID MY D ENT BUT IN LIGHT OF THE VALUE OF THE PROPERTY. IN MANY CASES WHERE A PERSON HAS SOME RIGHT O R EVEN A SEMBLANCE OF A RIGHT COMPENSATION IS PAI D TO ENSURE THAT THE TRANSACTION PASSES OFF SMOOTHLY BECAUSE THE CONTEXT IS TH E VALUE OF THE PROPERTY AND NOT WHAT COST THE PERSON WHO IS HOLDING THAT RIGHT HAD INCURRED OR WHAT SUMS OF MONEY HAD BEEN DEFRAYED. LOOKED AT IN THIS CONTEXT THE PAYMENT TO FOUR COMPANIES BY MY CLIENT CANNOT BE DOUBTED AT ALL I MAY ALSO MENTION THAT THE C O MPENSATION RECEIVED BY MY CLIENT HAS BEEN SUBJECTED TO TAX IN THE HANDS OF MY CLIENT AND THE BALANCE IN THE HANDS OF FOUR COMPANIES TO WHOM THE COMPENSATION WAS PAID BY MY CLIENT. THEREFORE FT IS NOT AS IF THE REVENUE HAS LOST ANY TAX. THE AGGREGATE COMPE NSATION PAID BY IREO HAS BEEN SUBMITTED TO TAX IN TWO DIFFERENT HANDS. IT IS PERTINENT TO NOTE THAT THE DEPARTMENT HAS TREATED AS FULLY VERIFIABLE THE FOLLOWING TRANSACTIONS (I) IT HAS ACCEPTED THE AGREEMENT WITH GDPL IN TOTALITY (II) IT HAS ACCEPTED THE R ECEIPT OF COMPENSATION BY MY CLIENT F ROM THE ULTIMATE PURCHASER I REO (11) IT IS HAS AL SO VERIFIED THE ACCOUNTS AND ENTIRE ANTECEDENTS OF THE RECIPIENT OF THE COMPENSATION FOUR COMPANIES AN D HAS FOUND NOTHING TO BE AMISS / BELIEVE, THAT THE SAID FOUR COMPA N IES WERE SUBJECTED TO A SEARCH/ SURVEY. IN THE INVESTIGATION OF FOUR COMPANIES THE DEPARTMENT HAS NOT COME ACROSS EVEN A SHRED OF EVIDENCE, TO ESTABLISH THAT THE PAYMENTS TO THEM ARE SHAM OR THAT ANY PART THEREOF WAS RETURNED TO MY CLIENT. VIEWED IN THAT L IGHT, THERE IS ABSOLUTELY NO BASIS FOR DISBELIEVING THE PAYMENT OF COMPENSATION. THE DEPARTMENT, HAS ACCEPTE D ALL THE LIMBS OF THE TRANSACTI ON, NAMELY THE TRANSACTION OF MY C/LENT WITH GDPL AND WITH /REO, AS WELL AS THE PAYMENT OF RS 19.50 CRORES TO FOUR C OMPANIES. THEREFORE ALL EXTERNAL EVIDENCE IS FULLY CORROBORATING WITH THE TRANSACTION WHICH MY CLIENT HAS EXECUTED. (C) THE ONLY OTHER REASON ON THE BASIS OF WHICH THE DEPARTMENT IS SEEKING TO TREAT THIS PARTICULAR TRANSACTION OF RS 19.50 CRORE BY MY DENT TO FOUR COMPANIES AS A SHAM TRANSACTION IS ON ACCOUNT OF THE FACT THAT THE STAMP PAPER ON WHICH THE CANCELLATION OF THE UNDERSTANDING WITH FOUR COMPANIES IS SAID TO HAVE .BEEN EXECUTED IN SEPTEMBER 2008 W AS ALLEGEDLY PURCHASED IN MARCH 2 009. BEFORE PROCEE DING TO EXPLAIN THIS IN CONGRUEN CY I WISH TO SUBMIT THE FACTS. AS HAS BEEN STATED IN MY EARLIER SUBMISSIONS MY CLIENT HAD ACQUIRED THE RIGHTS FROM GDPL IN 25 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT JANUARY 2008 AND IN APRIL 2008 HAD ENTERED INTO AN ARRANGEMENT WITH FOUR COMPANIES. IN SEPTEMBER 2008 HE GOT A MUCH BETTER OFFER AND AN INCREMENTAL COMPENSATION FROM IREO. CONSEQUENTLY IT WAS DECIDED TO CANCEL THE UNDERSTANDING WITH FOUR COMPANIES. EVEN THOUGH THE PARTI ES HAD CLEARLY ARRIVED AT THIS UN DERSTANDING, AN ARRANGEMENT IN SEPTEMBER 2008 IT WAS A GREED TO BY AND BETWEEN THE PARTIES THAT THE ACTUAL PAYMENT OF MONEY WOULD TRANSPIRE ONLY IN MARCH OR APRIL 2009. CONSEQUENTLY WHEN THE PAYMENT OF MONEY WAS ACTUALLY TO TAKE PLACE I.E. IN AND AROUND MARCH 2009 THE UNDERSTANDING WAS DOCUMENTED AND IN THE RU SH OF THINGS THE DATES AND ON WHICH THE ACTUAL UNDERSTANDING BETWEEN THE PARTIES HAD BEEN ARRIVED AT WAS MENTIONED. IT WAS EASILY POSSIBLE AT THAT TIME TO EXECUTE THE AGREEMENT IN MARC H 2009 AND MAKE IT EFFECTIVE FRO M SEPTEMBER 2008 THE TIME AT WHICH THE A CTUAL ARRANGEMENT WITH THE PARTIES HAD BEEN ARRIVED AT. (D) THEREFORE SUBMIT THAT THIS INCONGRUENCE WILL NOT IN ANY MANNER DETRACT FROM THE FACT THAT THE ACTUAL TRANSACTION IS AN ABSOLUTELY GENUINE ONE. I RESPECTFULLY SUBMIT THAT IN LAW IT NOWHERE STIPULAT ES THAT EVERY AGREEMENT HAS TO BE SUPPORTED BY A DOCUMENT. HONBLE BOMBAY HIGH COURT, IN THE CASE OF SMT . SHALINI & ORS VS . SHANKER NEEL KANTH LYER, (2005) 195 CTR (BORN) 581 HAS TAKEN A VIEW THAT AGREEMENT FOR TRANSFER OF IMMOVABLE PROPE RTY CAN BE ORAL AGR EEMENT. THE I NDIAN CONTRACT ACT 1872 ALSO ACCEPTS AS BINDING BETWEEN THE PARTIES AND ARRANGEMENT WHICH IS BORNE OUT BY THE CONDUCT OF THE PARTIES. THUS, ORAL CONTRACTS ARE RECOGNIZED BY THE LAW ESPECIALLY WHEN THE PARTIES ARE AD IDEM AND SUCH ORAL UNDERSTA NDING IS EVIDENT FROM SUBSEQUENT CONDUCT OF THE PARTIES. VIEWED IN TH AT LIGHT THE CORROBORATIVE EVID ENCE DEARLY BRINGS OUT THE COND UCT OF THE PARTIES. THE CONDUCT IS AS FOLLOWS. I. IT IS NOT DOUBTED BY THE DEPARTMENT THAT MY CLIENT HA D ACQUIRED RIGHTS IN RESPECT OF LAND ON 1 6TH JANUARY 2008. II. THE SUBSEQUENT ENTERING INTO OF THE UNDERSTANDING WITH I REO HAS BEEN ACCEPTED III THE PAYMENT OF MONIES TO FOUR COMPANIES AND ITS RECORDING IN THEIR BOOKS HAS BEEN FULLY VERIFIED BY THE DEPARTMENT AND NOT AN IOTA O F EVIDENCE WHICH WOULD RESULT IN. THIS ARRANGEMENT BEING TREATED AS SHAM HAS BEEN FOUND. CONSEQUENTLY ALL THE EVENTS WHICH ARE IN THE FORM OF EXTERNAL EVIDENCE POINT OUT TO THE EXISTENCE OF AN UNDERSTANDING. THEREFORE ASSUMING THAT THE DOCUMENTATION OF SEP TEMBER 2008 DID NOT EXIST BETWEEN THE PARTIES, WHICH B Y ITSELF CANNOT MAKE THE UNDERSTANDING OR PAYMENT OF COMPENSATION SHAM. IT IS CLEAR FROM THE CONDUCT OF THE PARTIES THAT RIGHT SINCE APRIL 2008 WHEN T HE UNDERSTANDING BETWEEN MY CLIENT AND FOUR COMPANIE S WAS ENTERED INTO UP TO THE TIME THAT: THE ARRANGEMENT WAS CANCELLED AND THE COMPENSATION OF RS 19.50 CRORE WAS PAID TO FOUR COMPANIES, THE PARTIES IRE AD IDEM. ONCE THE PARTIES ARE AD IDEM WHICH CAN BE PROVED FROM EXTERNAL EVIDENCE THERE IS ABSOLUTELY NO WARRANT TO TREAT A SMALL INCONGRUENCE AS AFFECTING THE VALIDITY OF THE TRANSACTION. 26 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT (E)JUDICIAL HISTORY IS REPLETE WITH A NUMBER OF CASES WHERE THE DEPARTMENT HAS GIVEN MORE WEIGHT TO THE CONDUCT OF THE PARTIES BASED ON DOCUMENTS RATHER THAN THE DOCUMENTS THEMSELVES. IN THIS REGARD, REL IANCE IS ALSO PLACED ON HONBL E MADRAS HC DECISION IN THE CASE OF LG. BALAKRISHNAN & BROS LTD VS CIT(2000) 245 ITR 743 (MAD) WHEREIN A NON - REGISTRATION OF HYPOTHECATION UNDER THE INDIAN REGISTRATION ACT WAS NOT CONSIDERED A S SIGNIFICANT FACTOR FOR THE PURPOSE OF ASCERTAINING THE CREATION OF VALID CHARGE, IN VIEW OF THE FACT THAT, CONDUCT OF THE PARTIES I. E. RESOLUTION OF THE COMPANY AUTHORIZING THE DIRECTOR TO CREATE SUBSEQUENT CHARGE ON HYPOTHECATION OF FIXED ASSET, ACTUAL CREATION OF CHARGE AND ITS REGISTRATION UNDER THE COMPANIES ACT, ALL POINTED OUT TO THE EXISTENCE OF PRIOR ORAL AGREEMENT FOR CREATING A CHARGE. IN FACT MANY INTERNAL DOCUMENTS HAVE BEEN TREATED AS SELF - SERVING DOCUMENTS BY THE DEPARTMENT UNLESS THEY ARE CORROBORATED BY OTHER CONDUCT OR EVIDENCE. IN THIS CASE THE CONDUCT OF THE ASSESSEE IS CRY STAL CLEAR AND VERIFIABLE AND THEREFORE IN THAT LIGHT ANY DISCREPANCY IN THE CANCELLATION AGREEMENT WITH FOUR COMPANIES DESERVES TO BE IGNORED IN TOTO . 7.2. FROM THE CONTENTION RAISED BY THE ASSESSEE THAT HE HAS NOT DENIED THIS FACT THAT THE STAMP PAPERS VIDE NOS . H 302453 AND H 302462 WERE ISSUED ON 07/07/2009 AND STAMP PAPERS VIDE NOS. H 063149 & H 063153 WERE ISSUED ON 05/06/2009. THE STAMP PAPERS NOS. H 06 352 SERIES WERE ISSUED ON 05.06.2009 HAVE BEEN USED TO PREPARE THE CANCELLATIONS OF MOUS ON LATTER DATES I.E. 20.08.2008, 24.08.2008 & 10.09.2009 AND STAMP PAPER NO. H 302 452 ISSUED ON 07.07.2009 HAVE BEE N USED TO PREPARE MOUS ON EARLIER DATE I.E, 04.04.2 008. THIS FACTS INDICATES THAT THIS SO CALLED MOUS AND CANCELLATION OF MOUS ARE FABRICATED. WE HAVE GONE THROUGH THE WRITTEN SUBMISSION FILED BY THE ASSESSEE WHEREIN THE ASSESSEE DID NOT DISP UTE THIS ABOVE FACTS THEREFORE, WE ARE OF THE VIEW THAT THIS MOUS AND CANCELLATION OF MOUS ARE FABRICATED. 7. 3 . NOW COMING TO THE STORY OF THE ASSESSEE WE HAVE TO GO BY EACH AND EVERY EVIDENCE PRODUCED BY THE ASSESSEE. THE ASSESSEE HAS MADE A GRO SS PROFIT OF RS.28,11,38,000/ - IN THE FORM OF COMPENSATION RECEIVED FROM T HE FOLLOWING COMPANIES FOR THE ABOVE LAND TRANSACTIONS DURING A.Y.2009 - 10; A) M/S BLACK BERRY REALTORS PVT. LTD., (45 ACRES) RS. 3,18,50,000/ - B) M/S MANAS INFRASTECH (16 ACRES) RS. 8,39,30,000/ - 27 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT C)M/S DUCAT PROP BUILD PVT. LTD, (4 ACRES) RS.3,20,00,00 0/ - D)M/S DUCAT PROP BUILD PVT. LTD.(1.5 ACRES) RS.1,44,20,000/ - E)M/S. GREAT REAL CON PVT. LTD., (125875 SQ MTS) RS.6,94,22,400/ - F)M/S SANCHAY INFRASTRUCTURE PVT. LTD. (125875 SQ.MTRS) RS. 2 ,08,29,600/ - G)M/S SANCHAY INFRASTRUCTURE PVT. LTD (MONTERO) RS.2,24,50,500/ - H)M/S SANCHAY INFRASTRUCTURE PVT. LTD (NAIKS) RS. 62,35,500/ - RS. 28,11,38,000/ - 7.3. THE ASSESSEE HAS PAID COMPENSATION OF RS. 19,50,00,000/ - TO FOLLOWING PARTIES WHICH READ AS UNDER: SI. NO. NAME OF THE RECIPIENT COMPAN Y AMOUNT PAID (RS.) REMARKS 1. M/S TANVI FINCAPS PVT. LTD., 61233, DOONGAR MOHALLA, FARSH BAZAR, SHAHDARA, DELHI - 110 032, DIRECTOR ANIL KUMAR, S /O . P.S. GUPTA, RESIDENT OF RDC - 131, RAJNAGAR, GHAZIABAD (U.P.). 6,85,00,000 ORIGINAL MOU IS STATED TO BE EXECUTED ON 04.04.2008. THE SAME IS STATED TO HAVE BEEN CANCELLED ON 24.08.2008. THE DOCUMENTS ARE APPARENTLY SIGNED BY MR. ANIL KUMAR. 2. M/S MAHIMA DEVELOPERS AND BUILDERS LTD., 25/26, GALI NO.16, VISHWASNAGAR, SHAHADRA, DELHI - 110 032, DIRECTOR : NISHANT SHARMA, S/O . RAJPAL SHARMA, RESIDENT OF D - 3908, LAJPATNAGAR, SAHIBABAD, GHAZIABAD (U.P.). 4,00,00,000 ORIGINAL MOU IS STATED TO BE EXECUTED ON 04.04.2008. THE SAME IS STATED TO HAVE BEEN CANCELLED ON 10.09 .2008. THE DOCUMENTS ARE APPARENTLY SIGNED BY MR. NISHANT SHARMA. 3. M/S CHITRAKOOT METAL LTD., ULIVEERANAPALLI VILLAGE, THALLY ROAD, HOSUR - 635 114 (T.N.), 3,65,00,000 ORIGINAL MOU IS STATED TO BE EXECUTED ON 04.04.2008. THE SAME IS STATED TO HAVE BEEN CANCELLED ON 10.09.2008. THE 28 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT DIREC TOR : KUNAL GARG, S/O . RAKESH GARG, RESIDENT OF 167, PATEL NAGAR, MUZAFFARNAGAR (U.P.). DOCUMENTS ARE APPARENTLY SIGNED BY MR. K UNAL GARG. 4. M/S PCN INVESTMENT PVT. LTD., 18/1, MAHARISHI DEBENDRA ROAD, KOLKATA, ADMINISTRATIVE OFFICE AT 17/5, 2 ND FLOOR, ROLAND TOWER, THE MALL, KANPUR, DIRECTOR: DEEPAK HADA, S/O MADANIAL HADA, RESIDENT OF 128/18, Y BLOCK, KIDWAI NAGAR, KANPUR (U .P.) 5,00,00,000 A) ORIGINAL MOU IS STATED TO BE EXECUTED ON 04.04.2008. THE SAME IS STATED TO HAVE BEEN CANCELLED ON 24.08.2008. THE DOCUMENTS ARE APPARENTLY SIGNED BY MR. DEEPAK HADA. B) THE NAME OF THE COMPANY WAS MEANWHILE CHANGED TO M/S SARDA MELCAST (P) LTD. OTHER PARTICULARS ARE SAME. TOTAL 19,50,00,000 7.4. TO VERIFY THE TRANSACTION THE ASSESSING OFFICER HAS TRIED TO VERIFY FROM THE ASSESSMENT RECORD AND AS PER THE ASSESSEE, THE ASSESSEE HAS RECEIVED 50,000/ - EACH FROM ABOVE FOUR PARTIES. THE AO VERIFIED BUT TDS FORM NO.26AS FOUND THAT ASSESSEE DID NO T DEDUCT A TAX AT SOURCE OF RS. 50,000/ - RECEIVED FROM THE ABOVE FOUR PARTIES. THE ASSESSEE HAS ALSO ADMITTED THAT HE HAS NOT DE DUCTED A TAX AT SOURCE FROM THE AMOUNT WHICH HE HAS RECEIVED FROM THE ABOVE PARTIES. THE ASSESSEE DID NOT PRODUCE THE EVIDENCE THAT THIS AMOUNT WAS SHOWN IN HIS BOOKS OF ACCOUNT. WE FIND THAT THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO SHOW THAT THIS AMOUNT WAS REFLECTED IN HIS BOOKS OF ACCOUNT. WE FIND THAT THE BURDEN OF PROOF LIES ON THE ASSE SSEE. WE FIND THAT THE BURDEN OF PROOF PROVING THE SOURCE OF MONEY PAID TO THE ABOVE PARTY ON THE ASSESSEE. IF THE ASSESSEE DISPUTES THE LIABILITY FOR TAX IT IS FOR HIM TO SHOW THAT EITHER THAT HE HE HAS PAID THEIR COMPENSATION AND IF HE HAS PAID THE TAX COMPENSATION THEN IT IS EXEMPT FROM TAXATION UNDER THE PROVISIONS OF ACT. IN ABSENCE OF SUCH PROOF THE 29 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT INCOME TAX OFFICER IS ENTITLED TO TREAT IT AS TA XABLE INCOME. WE FIND THAT THE BURDEN OF PROOF IS ON THE ASSESSEE TO PROVE THAT WHAT IS THE APPARENT IS NOT REAL THE PARTY AND CLAIMS IT. IN THE CASE OF CIT VS. DAULAT RAM RAWATMULL, 87 ITR 349 (SC) , WE FIND THAT IN THIS CASE, IT IS THE BURDEN OF THE ASSESSEE TO PROOF THAT THOUGH HE HAS NOT DEDUCTED THE TAX AT SOURCE AND ALL THE PARTIES TO WHOM HE HAS PAID THE COMP ENSATION HAS SHOWN THIS AMOUNT IN THE BOOKS OF AC COUNTS. WE FIND THAT SECTION 110 OF E VIDENCE ACT IS MATERIAL WHEN THE QUESTION IS WHETHER A NY PERSON IS OWNER OF ANYTHING OF WHICH HE IS SHOWN TO BE IN POSSESSION , THE BURDEN OF PROVING THAT HE IS NOT THE REALLY OWNER IS ON THE PERSONS, WHO CONFIRM THAT HE HAS NOT REALLY OWNER. SIMILARLY THE ASSESSEE IS FOUND WITH THE MONEY AND ASSESSEE ADMITT ED THAT HE HAS RECEIVED THE MONEY BUT HE HAS PAID THIS AMOUNT TO THE FOUR PARTIES. THE ASSESSEE DID NOT PROVE THE SAME, THEREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE HAS WRONGLY CLAIMED OF PAYMENT OF COMPENSATION OF AMOUNT OF TOTALLING 19.5 CRORES AND TR IED TO AVOID THE TAX. THE MOUS AND CANCELLATION OF MOUS WERE AFTER THOUGHT ON THE PART OF MR. N. SURNARAYANA TO MAKE A BOGUS CLAIM OF EXPENDITURE AND THUS TAX PAY MENT. THE ASSESSEE HAS CREATED THE CANCELLATION OF MOUS BY BACKDATING THE SAME. THE ASSESSEE HAS CREATED THE SAID MOUS AND CANCELLATION OF MOUS BY F RAUDULENT MEANS AND BY CREATING THE BOGUS MOUS AND CANCELLATION OF MOU TO MAKE A BOGUS CLAIM OF EXPENDITURE AND TO AVOID THE PAYMENT OF TAXES. IN THIS CASE, THE ASSESSEE CLAIMED THAT HE HAS ORALLY CO NTRACT WITH ABOVE FOUR PARTIES BUT THE CONDUCT OF THE ASSESSEE AND DOCUMENTARY EVIDENCE SHOWS THAT THE ASSESSEE HAS CREATED CANCELLATION OF MOUS BY BACKDATING AND WE ARE OF THE FALSE DOCUMENTS OF UNDERSTANDING. THE SAID FOUR COMPANIES DID NOT HAVE ANY AGRE EMENT WITH THE LAND OWNER OR TENANT OR ANY BODY WHO HAS ANY KIND OF INTEREST IN LAND. THE SAID COMPANY DID NOT HAVE ANY INTEREST IN THE LAND IN RESPECT WHICH OUT OF COMPENSATION OF 19.50 CROES IS CLAIMED . THE ONLY EVIDENCE IN SUPPORT OF CLAIM OF ALLEGED EX PENDITURE ARE THE ALLEGED AGREEMENT WITH THE SAID FOUR COMPANIES. 30 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT THE SAID AGREEMENTS ARE CREATED BY BACKDATING AND FRAUDULENT MEANS. THE ASSESSEE HAS CLAIMED BY FABRICATING EVIDENCE. WE ARE OF THE VIEW THAT THE ASSESSEE IS FAILED TO PROVE THAT ALLEGED EXP ENDITURE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SAID LAND DEALS IN MAHARAS H TRA. THEREFORE, WE ARE CONFIRM THE ACTION OF AO AND CIT(A). 7.5. DURING THE COURSE OF HARING THE LEARNED AR WAS ARGUED ASKED WHETHER ALL THESE EVIDENCE SHOWS THAT THE COMPENS ATION HAS BEEN ACCOUNTED IN THE BOOKS O F RECEIVING PARTY OR NOT. WHETHER THE ASSESSEE IS READY TO PRODUCE THE EVIDENCE THAT THE ASSESSEE HAS REALLY PAID COMPENSATION TO THE ABOVE PARTIES OR NOT. PLEASE PRODUCE THE EVIDENCE IN SUPPORT OF THE CLAIM OF THE A SSESSEE. WE HAVE NO T RECEIVED ANY EVIDENCE IN SUPPORT OF THE CLAIM BUT THE ASSESSEE HAS PRODUCED THE FOLLOWING EVIDENCE BEFORE US. IN REGARDS TO THE ABOVE SAID COMPANIES ON THE COMPENSATION PAID THE AFFIDAVITS, CONFIRMATIONS ON THE AMOUNTS PAID TO THEM A S COMPENSATION WAS FILED IN TERMS OF PAPER BOOK AND ALSO IN PRESENTED IN ORAL ARGUMENTS. THE HON BENCH HAD ASKED IF ANY INCOME TAX RETURNS PERTAINING TO THESE COMPANIES COULD BE PRODUCED AND ATTEMPT IS MADE TO FILE HERE WHATEVER IS POSSIBLE. EXCEPT THE IT RETURNS ALL OTHER INFORMATION THAT ARE FILED AS COMPENDIUM HERE LIKE FINANCIAL STATEMENTS OF THESE COMPANIES WERE ALSO FILED IN THE EARLIER PAPER BOOK FILED. 1. CHITRAKOOT METAL LIMITED - PAGE NOS MARKED FROM 1 TO 40. A. PAGE NO 5 I.E THE IT RETURN OF THE SAID COMPANY OF THE SAME SHOWS AN SUNDRY DEBTORS OF RS 104185447.00 B. PAGE NO 31 SHOWS THE AUDITED FINANCIALS AND SCHEDULE 7; SUNDRY DEBTORS REPORTS OF THE SAME FIGURE. C. PAGE NO 40A SHOWS THE BREAK UP OF THE SUNDRY DEBTORS OF 104185447.00 WITH AN ELEMEN T OF SURYA NARAYANA NALJALA OF 3,65,00,000.00 WHICH IS THE SAME AMOUNT OF THE COMPENSATION WHICH IS CONFIRMED BY THE CONFIRMATION FILED EARLIER AND THE PROFIT ON COMPENSATION MARKED BY THEM TOWARDS THE P/L ACCOUNT. 2. TANVI FIN CAP P. LTD PAGE NOS 41 TO 59 . 31 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT A. PAGE NOS 51 SHOWS THE P/L ACCOUNT OF THE SAID COMPANY WITH SCHEDULE 10 SHOWING OTHER INCOME 81750395.30 WHERE THE ENTRY OF THE COMPENSATION ON CANCELLATION BY N. SURYANARAYANA RESIDES. B. PAGE 56 IN BOOKS OF TANVI SHOWING THE APPELLANT SURYANARAYANAS LEDGER AND THE PROFIT FROM PROPERTY OF RS 6,85,00,000.00 C. PAGE NO 57 SHOWING THE SUNDRY DEBTORS AND THE N. SURYANARAYANAS COMPENSATION AMOUNT ON CANCELLATION. D. SCHEDULE OF THE INDIRECT INCOMES PAGE NO 58 PROFIT FROM PROPERTY OF 72654856.00 HAVING AN ENTRY OF THE 68500000.00 AS A PART OF IT, SUPPORTED BY THE DETAILED LEDGER EXTRACT ON PAGE NO 59 OF THE BREAKUP OF 72654856.00 PAGE NO 58 SHOWS TOTAL CREDIT OF 88761387.00 AND TOTAL DEBIT OF 7010992.60, NET IS CREDI TED TO THE SCHEDULE 10 OF OTHER INCOME OF RS 81750395.00 3. MAHIMA DEVELOPERS AND BUILDERS LIMITED. PAGE NO 40 SHOWING THE PROFIT FR4OM DEALING OF THE PROPERTY OF RS 67664791.00 WHICH HAS AN ELEMENT OF THE COMPENSATION PAID ON CANCELLATION BY N. SURYANARAYAAN AS EVIDENCED BY THE CONFIRMATION OF TH E MAHIMA FILED AND PRODUCED EARLIER. 4 SARDA MELCAST P. LTD THE PAGE NO 87 SHOWS AN AMOUNT OF RS 67529876.00 CRED I TED OR A PART OF SCHEDULE M OF SALES OF THE COMPANY; THIS INCLUDES THE REPUDIATION CONTRACT COMPENSATION FOR CANCELLATION. THE CONFIRMATION OF ACCOUNTS FILED FOR THE SAID PARTY CLEARLY MARKS THE ENTRY OF THE COMPENSATION AMOUNT ON CANCELLATION. PLEASE TAKE THE ABOVE INFORMATION AS REQUIRED. 7.6. WE HAVE TRIED TO VERIFY THE ABOVE DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLAIM OF THE ASSESSEE. IN S UPPORT OF THE COMPENSATION RECEIVED FROM CHITRAKOOT METAL THE ASSESSEE SUBMITTED THAT THE COMPANY HAS SOLD THE SUNDRY DEBTORS AND SUNDRY DEBTORS INCLUDES THE ELEMENT OF THE COMPENSATION RECEIVED FROM ASSESS EE OF RS. 3.65 CRORE. NOW WE HAVE VERI FIED AND CONS IDERED WHO ARE THE SUNDRY DEBTORS AND WHY THIS AMOUNT IS SHOWN AS SUNDRY DEBTORS BECAUSE ASSESSEE HAS RECEIVED THIS AMOUNT TOWARDS COMPENSATION, THEREFORE, IT CANNOT BE ADDED AS SUNDRY DEBTORS. MOREOVER AS PER THE EVIDENCE THE STATEMENT OF SHRI KUNAL GARG, DIRECTOR AND SIGNATORY OF MOU AND CANCELLATION OF MOU ON BEHALF OF M/S. 32 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT CHITRAKOOT METAL LTD., WE FIND THAT THIS AMOUNT HAS BEEN TRANSFERRED TO M/S. ASTHA TRADE LINK PVT. LTD., AS ADVANCE FOR PURCHASE OF RAW MATERIALS DURING JULY 2009. SHRI KUNAL GARG, H AS NOT PRODUCED ANY EVIDENCE TO SHOW THAT THIS AMOUNT HAS BEEN PAID TO M/S. ASTHA TRADE LINK AS ADVANCE FOR PURCHASE OF RAW MATERIALS. THERE IS NO EVIDENCE BEFORE US TO SHOW THAT SUNDRY DEBTORS ARE THE COMPANY'S CUSTOMERS WHO RARELY MAKE PURCHASES ON CRED IT AND THE AMOUNTS THEY PURCHASE ARE NOT SIGNIFICANT. 7.7. WE HAVE VERIFIED THE DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE IN REGARDS OF CHITRAKOOT METALS PVT. LTD. IN THE EVIDENCE IT IS SUBMITTED THAT 3.65 CROR E HAS BEEN GIVEN AS ADVANCE TO M/S. ASTHA TRADE LINK PVT. LTD. KOLKATA. WE FIND THAT NO DOCUMENTARY EVIDENCE IS SUBMITTED BEFORE US, THEREFORE, THIS EVIDENCE IS NOT RELIABLE. 7.8. IN THE CASE OF TANVI FIN CAP P VT . LTD , THE ASSESSEE TRIED TO CREATE THE EVI DENCE BEFORE US BUT IN THE STATEMENT BEFORE THE INVESTIGATION PARTY IN RESPECT OF TANVI FIN CAP P. LTD , THE DIRECTOR OF THE COMPANY MR. ANIL KUMAR AND MR. NISHANT SHARMA ( THE DIRECTOR OF M/S. MAHIMA DEVELOPERS AND BUILDERS LTD.). BOTH HAVE DENIED TO ENTE RED INTO MOUS FOR CANCELLATION DATED 24/08/2008 AND 10.09.2008. THEREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE HAS TRIED TO CREATE THE EVIDENCE AFTER THOUGHT THEREFORE, WE CONFIRM THE SAME. 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 30 .09 .2014. SD/ - SD/ - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 30.09 .2014 P.S. - *PK* 33 . ITA NO. 219/PNJ/2013 (A.Y.2009 - 10) SH. N. SURYANARAYANA VS. DCIT COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER