M/s. D.R. Construction, Surat V. The Income tax Officer,Ward-2(3), Surat

ITA 2735/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6922 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-03-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 22-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: RASESH SHAH
• Keywords: Unexplained investment; Unexplained expenditure; Capital asset; Business income; Income from undisclosed sources; Loose papers; Deemed to accrue or arise in india; Corroborative evidences
• Section: 69C; 142(1); 133A; 80IB; 131; 68; 69; 148; 56

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M M/S D.R. CONSTRUCTION, 710, SILK PLAZA, RING ROAD, SURAT. VS. INCOME-TAX OFFICER, WARD 2(3), SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI RASESH SHAH, AR RESPONDENT BY:- SHRI SHELLEY JINDAL, CIT, DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LD. AO HAS ERRED IN MAKING ADDITION OF RS.10,00,00,000/- AS FOR INCOME NOT OFFERED FOR TAX ATION IN RETURN OF INCOME WHICH IS DISCLOSED DURING SURVEY P ROCEEDINGS. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LD. AO HAS ERRED IN MAKING ADDITION OF RS.13,35,593/- ON ACCOUNT OF INTEREST INCOME ON ADV ANCES BY TREATING THE SAME AS INCOME FROM OTHER SOURCES. (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LD. AO HAS ERRED IN MAKING ADDITION OF RS.2,69,690/- AS INTEREST ALLEGED INTEREST FREE ADV ANCES. (4) IT IS, THEREFORE, PRAYED THAT ABOVE ADDITION MADE B Y THE AO AND CONFIRMED BY CIT(A) MAY PLEASE BE DELETED. ITA NO.2735/AHD/2010 ASST. YEAR 200809 ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 2 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAG ED IN THE BUSINESS OF CONSTRUCTION. IT HAS UNDERTAKEN A PROJECT FOR CONST RUCTING HOUSES/FLATS AT SURAT. A SURVEY U/S 133A WAS CARRIED OUT ON 19.9.20 07 AT THE BUSINESS PREMISES OF THE ASSESSEE AT BLOCK 30, MODEL TOWN PA RK, OPP. BHAKTI DHAM MANDIR, MAGOB, SURAT. IT IS CLAIMED BY THE AO THAT CERTAIN LOOSE PAPERS WERE FOUND FROM THE BAG FROM SHRI RAVI KHAND ELWAL, A PARTNER IN THE ASSESSEE FIRM. WHEN CONFRONTED WITH THE QUERIES OF COST OF CONSTRUCTION AND PURCHASE OF MATERIAL AND SALE PRIC E OF THE FLATS, SHRI RAVI KHANDELWAL CAME FORWARD TO OFFER A SUM OF RS.10 CRO RES AS FIRMS UNACCOUNTED INCOME FOR TAXATION FOR ASST. YEAR 2007 -08 RELEVANT TO ASST. YEAR 2008-09. HE ALSO GAVE A BIFURCATION OF EXPENDI TURE/INVESTMENT INCURRED OUT OF THE INCOME OF RS.10 CRORES AS UNDER :- (I) UNACCOUNTED INVESTMENT IN MODEL TOWN PARK SCHEME (IN 17 TOWNERS UNDER CONSTRUCTION) RS.5,00,00,000/- (II) UNACCOUNTED STOCK OF CEMENT, STEEL, RETI AND O THER MATERIAL FOUND AT THE SITE OFFICE AT MODEL TOWN PAR K, MAGOB, SURAT. RS.90,00,000/- (III) UNEXPLAINED INVESTMENT/EXPENSES IN THE PAPERS FOUND AND IMPOUNDED FROM THE OFFICE AT MODEL TOWN PARK, MAGOB, SURAT. RS.2,00,00,000/- (IV) PAYMENT OF ON MONEY MADE, IN CASH DURING THE YEAR THROUGH THE BROKERS FOR THE PURCHASE OF LAND F OR MODEL TOWN PARK, MAGOB, SURAT WHICH IS NOT RECORDED ANYWHERE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FIRM OR ITS PARTNERS RS.2,10,00,000/- TOTAL RS.10,00,00,000/- HOWEVER, THE ASSESSEE DID NOT DECLARE THE SAID SUM OF RS.10 CRORES IN THE RETURN OF INCOME NOR PAID TAXES THEREON. NOTICES U/ S 142(1) WERE ISSUED BUT THERE WAS NO COMPLIANCE. THEREAFTER NOTICE U/S 148 WAS ISSUED ON 19.2.2009 TO FILE RETURN FOR THIS ASST. YEAR . THE RETURN OF INCOME WAS FILED IN RESPONSE TO ABOVE NOTICE ON 22.3.2009 DECL ARING TOTAL INCOME AT ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 3 RS.NIL. THE AO FURTHER NOTICED A REMARK BY THE AUDI TOR IN PARA 3 OF FORM NO,3CD OF AUDIT REPORT AS UNDER :- ASSESSEE FIRM HAS DECLARED RS.10 CRORES IN THE COU RSE OF SURVEY CONDUCTED U/S 133A UNDER THE INCOME-TAX ACT, 1961 O N 19.09.2007 ENTRY MADE IN THE BOOKS OF ACCOUNTS HAVE BEEN VERIFIED WI TH REFERENCE TO THE STATEMENT RECORDED DURING THE SURVEY. THE RECEIPT O F RS.10 CRORES BY WAY OF BOOKING ADVANCE ARE REPRESENTED AGAINST AS REVEN UE EXPENDITURE AND ASSETS. THEREAFTER THE AO GAVE A DETAILED SHOW CAUSE NOTICE TO THE ASSESSEE MAINLY CALLING FOR HIS EXPLANATION FOR NOT DECLARIN G RS.10 CRORES IN THE RETURN OF INCOME AS PROMISED/STATED BY HIM DURING T HE COURSE OF SURVEY. THE DETAILED SHOW CAUSE NOTICE AND THE REPLY OF ASS ESSEE ARE QUOTED IN THE ASSESSMENT ORDER IN PARA 4.2 AND PARA 4.3. AFTER CO NSIDERING THE REPLY OF THE ASSESSEE, THE AO PROCEEDED TO TAX THE SUM OF RS .10 CRORES AS ASSESSEES UNDISCLOSED INCOME FOR THE FOLLOWING REA SONS:- 4.5 DURING THE COURSE OF SURVEY PROCEEDINGS, A STA TEMENT WAS RECORDED FROM SHRI RAVI KHANDELWAL. ONCE THE ASSESSEE HAD MADE THE DIS CLOSURE BY WAY OF ADMISSION DURING THE COURSE OF SURVEY U/S 133A, THE ONUS OF P ROVING OR DISPROVING THE SAME SHIFTS ON HIM. THE STATEMENT INCORPORATING THE ADMI SSION GIVEN BY THE ASSESSEE, AT THE TIME OF SURVEY IS NOT A MERE PIECE OF PAPER, BUT A DOCUMENT WHICH IS SANCTIFIED UNDER OATH. IN THE COURSE OF STATEMENT U/S 133A, SPECIFIC QUESTIONS, REGARDING THE BOOKS OF ACCOUNTS AND DOCUMENTS FOUND DURING THE COURSE OF S URVEY, WERE PUT UP TO THE ASSESSEE. THE ASSESSEE GAVE DETAILED EXPLANATION RE GARDING ENTRIES IN MOST OF THESE BOOKS OF ACCOUNTS AND DOCUMENTS. SIMILARLY, DURING THE COURSE OF SURVEY, THE RECORDS LOOSE PAPERS AND DOCUMENTS FOUND FROM THE ASSESSEE S PREMISES WERE ALSO SHOWN TO SHRI RAVI KHANDELWAL AND HE HAD GIVEN OPPORTUNITY T O VERIFY THE CONTENTS THEREIN AND THEN ONLY HE ADMITTED THE FIGURES SHOWN IN THE PAPE RS AS UNACCOUNTED INCOME. IF THERE WAS ANY MISTAKE, IT WAS UPTO THE PARTNER OF THE FIR M TO POINT OUT THEN AND THERE AND CLARIFY THE MATTER. 4.6 ALTHOUGH THE ASSESSEE HAS NOT RETRACTED HIS STA TEMENT, MAKING THE DISCLOSURE OF RS.10,00,00,000/-, HOWEVER, THE ASSESSEE HAS TAK EN ON MONEY WHICH WAS THE UNACCOUNTED INCOME OF THE ASSESSEE AND THE SAME WAS UTILIZED FOR VARIOUS PURPOSES. THE APPLICATION OF UNACCOUNTED INCOME HAS BEEN SUBM ITTED BY THE ASSESSEE WHICH HAS ALREADY BEEN MENTIONED AT VARIOUS PLACES IN THE ORD ER. THE SAID AMOUNT SHOULD HAVE BEEN SHOWN AS INCOME BY THE ASSESSEE WHICH HE HAS N OT DONE. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 4 THE REASONS FOR MAKING ADDITION OF RS.10 CRORES WER E THAT ASSESSEE HAS TAKEN ON MONEY WHICH WAS UNACCOUNTED INCOME OF TH E ASSESSEE AND SAME WAS APPLIED/UTILIZED FOR VARIOUS PURPOSES AS S TATED BY SHRI RAVI KHANDELWAL DURING THE COURSE OF SURVEY. 3. WHEN THE MATTER CAME UP BEFORE THE LD. CIT(A), H E EXAMINED THE ISSUE AFRESH AND CONFIRMED THE ADDITION FOR VARIOUS REASONS. THEY ARE SUMMARISED AS UNDER :- (1) THE DISCLOSURE WAS MADE AFTER SATISFYING HIMSEL F BY SHRI RAVI KHANDELWAL FROM HIS RECORDS, NOTINGS IN THE DIARY A ND LOOSE PAPERS AND IT IS STATED THAT SUCH DISCLOSURE IS TRUE AND CORRECT. BREAK UP OF ABOVE DISCLOSURE UNDER VARIOUS HEADS HAVE ALSO BEEN GIVEN . (2) THE DISCLOSURE MADE BY THE ASSESSEE HAS NOT BEE N DISPUTED AND HAS NOT BEEN RETRACTED. (3) THE ASSESSEE HAS INCORRECTLY SHOWN THE ABOVE SU M OF RS.10 CRORES AS ADVANCES IN THE BOOKS AND HAS PASSED CORRESPONDI NG DEBIT ENTRIES AS INVESTMENT MADE IN WIPS ETC. THE ASSESSEE HAS THUS BY PASSING ABOVE ENTRIES NULLIFIED THE EFFECT OF DISCLOSURE. (4) THE ASSESSEE HAS, AS PER BIFURCATION GIVEN, SHO WN A PAYMENT OF RS.2.10 CRORES AS ON MONEY FOR PURCHASE OF LAND W HICH IS NOT RECORDED IN THE BOOKS. SIMILARLY, THE DISCLOSURE OF RS.5 CRO RES AND RS.2 CRORES BEING UNACCOUNTED INVESTMENT IN MODEL TOWN PARK, MA GOB, SURAT AND EXPENSE HAS NO RELATION WITH THE ADVANCES AS THEY A RE UNACCOUNTED INVESTMENT ON THE DATE OF SURVEY. IN ANY CASE THE I NVESTMENT/EXPENDITURE INCURRED BY THE ASSESSEE HAS NO CO-RELATION WITH AD VANCE, IF ANY. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 5 (5) WHAT IS DECLARED BY THE ASSESSEE IS UNACCOUNTED INVESTMENT/EXPENDITURE WHICH HAS TO BE TAXED U/S 69 C SEPARATELY. THE LD. CIT(A) RELIED ON THE DECISION OF HON. GUJARAT HIGH COURT IN FAKIR MOHAMED HAJI HASAN VS. CIT (2001) 247 ITR 290 (GUJ) . THUS ONCE IT IS DEEMED INCOME THEN IT HAS TO BE TAXED SEPARATELY AN D NO EXPENDITURE CAN BE ALLOWED AGAINST THIS INCOME, AS PER PROVISO TO S ECTION 69C. (6) ASSESSEE HAS CLAIMED TO HAVE FOLLOWED PROJECT C OMPLETION METHOD BUT SUCH PROJECT COMPLETION METHOD CANNOT BE APPLIE D. HE HAS TO SHOW INCOME EVERY YEAR ON PERCENTAGE COMPLETION METHOD A S PER REVISED ACCOUNTING STANDARD AS-7. (7) THE ASSESSEE MIGHT MAKE ANY ENTRY IN THE BOOKS OF ACCOUNT SHOWING, FIRST ADVANCES RECEIVED AND THEN PASSING D EBIT ENTRIES SHOWING EXPENDITURE/INVESTMENT AGAINST SUCH ADVANCES, BUT A CCOUNTING ENTRIES CANNOT OVER RIDE THE PROVISIONS OF THE ACT INASMUCH AS SUCH INCOME HAS TO BE TAXED AS DEEMED INCOME U/S 69C AND IT CANNOT BE NULLIFIED BY PASSING BOOK ENTRIES. IN SUPPORT OF HIS REASONS LD. CIT(A) RELIED ON THE DECISION OF HON. PATNA HIGH COURT IN SUKHDEV JALAN VS. CIT 26 ITR 617 (PAT), DECISIONS OF HON. SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. VS. CIT 227 ITR 172 (S C) AND IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD. 188 ITR 44 (SC). (8) THE LD. CIT(A) REFERRED TO LARGE NUMBER OF DECI SIONS IN SUPPORT OF HIS REASONING THAT INCOME HAS TO BE COMPUTED AND TA XED EACH YEAR WITHOUT WAITING FOR THE COMPLETION OF PROJECTS. THE SE DECISIONS ARE AS UNDER :- ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 6 TIRTHRAM AHUJA (P) LTD. VS. CIT 103 ITR 15 (DEL) CIT VS. NANDRAM HUNTRAM 103 ITR 433 (ORI) UTTAM SINGH DUGGAL & CO. (P) LTD. VS. CIT 127 ITR 2 1 (DEL) CHAMPION CONSTRUCTION CO. VS. ITO 5 ITD 495 (MUM TR IB) SHREE NIRMAL COMMERCIAL LTD/ 193 ITR 694 (BOM) GOODYEAR INDIA LTD. VS. STATE OF HARYANA 188 ITR 40 2, 428(SC) RAJPUR RUDA MEHA VS.STATE OF GUJARAT AIR 1980 (SC) 1707, 1708. FINALLY THE LD. CIT(A) GAVE FOLLOWING DECISION :- 5. IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT AG AINST THE UNACCOUNTED INCOME OF RS.10 CRORES OFFERED BY THE A PPELLANT DURING THE COURSE OF SURVEY, NO EXPENSES CAN BE CLAIMED IN ANY MANNER WHATSOEVER, VIZ., BY DEBITING CORRESPONDING EXPENSES A/C AND TR ANSFERRING IT TO WIP A/C AS DONE BY THE APPELLANT. THE APPELLANT HAS, IN THE WRITTEN SUBMISSION, ALSO MADE A CLAIM THAT IF ADDITION OF R S.10 CRORES IS NOT DELETED, CORRESPONDING DEDUCTION U/S 80IB(10) MAY K INDLY BE DIRECTED TO BE ALLOWED AS PROFIT DERIVED FROM THE HOUSING PROJE CT, AS THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT. THI S CLAIM OF THE APPELLANT IS NOT SUSTAINABLE AS ALREADY HELD ABOVE THE UNACCO UNTED INCOME OFFERED BY THE APPELLANT IS NOT THE INCOME FROM THE REGULAR BOOKS OF ACCOUNT UPTO THE DATE OF THE SURVEY AND, THEREFORE, IN THE NATUR E OF DEEMED INCOME AGAINST WHICH, AS SEEN IN THE EARLIER PARAS, NO DED UCTION OR SET OFF IS ALLOWABLE. ACCORDINGLY, THE FIRST GROUND OF APPEAL IS DISMISSED. 9. AGAINST THIS ORDER OF LD. CIT(A), THE LD. AR FOR THE ASSESSEE SUBMITTED THAT - (1) IN THE STATEMENT RECORDED BY AUTHORISED OFFICER S DURING THE COURSE OF SURVEY ASSESSEE HAS CLEARLY STATED THAT IT HAS R ECEIVED ON MONEY AGAINST THE BOOKING OF FLATS AND IT HAS BEEN INVEST ED/SPENT IN THE MANNER WHOSE DETAILS ARE ALSO GIVEN BY THE ASSESSEE. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 7 (2) THUS ASSESSEE HAS GIVEN THE SOURCE OF EXPENDITU RE/INVESTMENT WHICH IS THE RECEIPT OF ON MONEY AGAINST BOOKING OF FLATS. (3) THE STATEMENT OF SHRI RAVI KHANDELWAL SHOULD NO T BE READ IN ISOLATION AND ENTIRE STATEMENT SHOULD BE READ AS A WHOLE. THEN IT WOULD BE CLEAR THAT ON ONE HAND SHRI RAVI KHANDELWAL REFERRE D TO RECEIPT OF ON MONEY ON BOOKING OF FLATS AND ON THE OTHER HAND HE REFERRED TO INVESTMENT/EXPENDITURE OUT OF SUCH ON MONEY. (4) THE ASSESSEE HAS NOT RETRACTED THE STATEMENT AN D HE HAS ALL THE INTENTION TO DECLARE THE SAME IN THE YEAR OF INCOME IN APPROPRIATE YEAR. IT WAS A MISTAKE ON THE PART OF SHRI RAVI KHANDELWAL T O SAY THAT THIS DISCLOSURE WOULD BE DECLARED IN ASST. YEAR 2007-08 WHICH IN FACT COULD NOT BE LEGALLY DONE AS NO INCOME ACCRUED TO THE ASS ESSEE DURING THIS YEAR. (5) THERE IS NO EVIDENCE IN SUPPORT OF THE CLAIM OF THE DEPARTMENT THAT ASSESSEE HAS MADE INVESTMENT/EXPENDITURE OVER AND A BOVE WHAT IS RECORDED IN THE BOOKS EXCEPT THE STATEMENT OF SHRI RAVI KHANDELWAL WHICH WAS GIVEN TO SUPPORT THE RECEIPT OF ON MONEY . (6) SINCE ASSESSEE HAS NOT SOLD ANY FLAT DURING THI S YEAR THE REVENUE WOULD NOT ACCRUE TO THE ASSESSEE AND, THEREFORE, NO RECEIPT WHETHER BY WAY OF CHEQUE OR BY WAY OF CASH CAN BE TAXED THIS Y EAR. THE ASSESSEE HAS HIMSELF OFFERED/DECLARED THE ON MONEY IN THE YEAR WHEN FLATS ARE SOLD. HE REFERRED TO THE ACCOUNT FOR ASST. YEAR 2009-10 A ND ALSO 2010-11 WHEREIN FLATS HAVE BEEN SOLD AND ACCORDINGLY RECEIP T OF ON MONEY HAS ALSO BEEN DECLARED IN THE RETURN. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 8 (7) THE LD. AR SUBMITTED THAT ENTIRE ADVANCES AGAIN ST FLATS HAVE BEEN ACCOUNTED FOR AND HAVE BEEN SHOWN AS ADVANCES WHICH INCLUDED SUM OF RS.10 CRORES RECEIVED AS BOOKING ADVANCE IN CASH AN D AGAINST WHICH VARIOUS EXPENSES HAVE BEEN BOOKED AND SHOWN AGAINST WIP. HE SUBMITTED THAT IN FY ENDING 31 ST MARCH, 2010 ASSESSEE HAS SALE RECEIPT OF RS..13,13,54,304/- FOR SALE OF 141 FLATS AND 8 SHOPS TOTALING TO 149 UNITS. IN FY 2010-11 UPTO 15.3.2011 ASSESSEE HA S SOLD TOTAL 55 UNITS INCLUDING 53 RESIDENTIAL UNITS FOR A SUM OF RS.5,47 ,37,970/-. IN THE TWO YEARS ASSESSEE HAS TAKEN PROPORTIONATE BOOKING ADVA NCES OF ON MONEY OF RS.4,18,68,899/- AND OF RS.1,82,09,630/-RESPECTI VELY. PRESENT FY HAS NOT YET ENDED AND ASSESSEE MAY FURTHER SELL THE FLA TS AND FURTHER ADJUST ON MONEY AGAINST SALE OF SUCH FLATS. HE HAS STILL TO SELL 204 UNITS. AS AND WHEN THESE UNITS ARE SOLD, THE BALANCE OF ON MONEY AMOUNTING TO RS.6,00,78,529/- WILL BE ACCOUNTED FOR AGAINST SALE S. THEREFORE, IT IS INCORRECT ON THE PART OF THE REVENUE TO SAY THAT AS SESSEE HAS NOT DISCLOSED ON MONEY COMPONENT DECLARED DURING THE COURSE OF SURVEY. (8) IT IS INCORRECT TO TAX CHEQUE AMOUNT IN THE YEA R WHEN SALES OF THE FLATS ARE MADE BUT TAX ON MONEY IN ONE GO IN ASST . YEAR 2008-09 MERELY ON THE BASIS OF STATEMENT GIVEN BY THE PARTNER SHRI RAVI KHANDELWAL AS LEGALLY IT CANNOT BE DONE SO. SHRI RAVI KHANDELWAL WAS NOT AWARE ABOUT THE CORRECT LEGAL POSITION AS TO WHEN SUCH ON MONE Y SHOULD BE TAXED. HE WAS UNDER LOT OF MENTAL PRESSURE DUE TO SURVEY AND COULD NOT REALIZE AS TO WHEN THIS AMOUNT SHOULD BE LEGALLY OFFERED FOR TAXA TION AND WHEN IT SHOULD BE LEGALLY ASSESSED. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 9 (9) ONCE ASSESSEE HAS OFFERED THE SAME IN THE YEAR WHEN REVENUE ACCRUED, IT SHOULD NOT BE AGAIN TAXED IN ASST. YEAR 2008-09 AS IT WILL AMOUNT TO DOUBLE TAXATION. 10. AGAINST THIS, THE LD. DR SUBMITTED THAT IT IS T HE ASSESSEE WHO HIMSELF DECLARED THE SUM AS HIS INCOME FOR ASST. YE AR 2008-09 IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY ON 1 9.9.2007 AND HE HAS NOT RETRACTED THIS STATEMENT THEN ASSESSEE SHOULD N OT BE ALLOWED TO REVERT BACK AND SAY THAT IT WOULD NOT BE TAXABLE NOW IN AS ST. YEAR 2008-09 BUT WOULD BE TAXABLE IN ASST. YEAR 2009-10 OR 2010-11 W HEN FLATS WERE ALLEGEDLY SOLD. THE LD. DR REFERRED TO THE STATEMEN T OF SHRI RAVI KHANDELWAL AND IN PARTICULAR QUESTION NO.26, 27 & 2 8 THEREOF AND ANSWERS TO THEM TO SUPPORT HIS ARGUMENT THAT IT IS SHRI RAVI KHANDELWAL HIMSELF WHO HAS SAID THAT THIS AMOUNT IS HIS INCOME FOR ASST. YEAR 2008- 09. THE RELEVANT PART OF STATEMENTS ARE AS UNDER :- Q: 26: TODAY ON 19.9.2007 DURING THE COURSE OF SURV EY IN THE MODEL TOWN PARK, WE HAVE SEEN THE LOOSE PAPERS FILED A/1/ 5 AND A/2/17 AND A/2/16 FOUND FROM HAND BAG WHICH WAS KEPT NEAR THE TABLE AND AS PER DATA ENTERED INTO THESE PAGES AND AS PER EVOLUTION OF FACTS THEREFROM (IT IS NOTICED YOU HAVE MADE LOT OF UNACCOUNTED INVESTMENT IN THE MODEL TOWN PARK CONSTRUCTED BY DR CONSTRUCTION. THIS (UNACCOUN TED INVESTMENT) IS NOT ENTERED IN THE BOOKS OF ACCOUNT AND ALSO THE O N MONEY TAKEN AS BOOKING RECEIPT IS ALSO NOT SHOWN IN THE BOOKS ANYW HERE (ON MONEY IS 14% OF TOTAL RECEIPT APPROXIMATELY), WHATEVER FLATS /UNITS YOU HAVE SOLD THEIR SALE IS NOT FULLY DECLARED ANYWHERE, IN THE S AME WAY AFTER ANALYSIS OF THESE FACTS IT IS NOTICED THAT WHATEVER REAL INC OME, EXPENDITURE, INVESTMENT WHICH YOU HAVE DONE IN MODEL TOWN PARK I S CONCEALED. THEREFORE, I GIVE YOU MORE TIME SO THAT YOU AFTER T HINKING AND LOOKING INTO THE PAPERS FOUND IN THE FILE, EXPLAIN THE REAL POSITION AND GIVE US TO BRING OUT THE REAL FACTS. A: 26: YES, SIR, AS STATED BY YOU WHATEVER INVESTME NT IN LAND I HAVE MADE THE WHOLE OF INVESTMENT IS NOT DISCLOSED BY ME AND SIMILARLY, WHATEVER ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 10 ON MONEY PER DWELLING UNIT WHICH HAS ALSO NOT BEE N DISCLOSED BUT REAL DATA CAN BE STATED ONLY AFTER DISCUSSION AND ADVICE WITH MY FATHER. (ADJOURNED FOR DISCUSSION AS SUGGESTED BY SHRI RAVI KHANDELWAL) Q. 27: MR. RAVI KHANDELWAL. IF YOU HAVE TALKED AND DISCUSSED WITH YOUR FATHER VISHWANATH KHANDELWAL AND OTHER KNOWN P ERSONS THEN ANSWER THE QUESTION NO.26 ? A. 27: YES, I HAVE DISCUSSED WITH MY FATHER & OTHER KNOWN PERSONS. ALONG WITH THIS I HAVE ALSO SEEN ALL THE DOCUMENTS WHICH WERE IN IMPOUNDED FILES. AFTER CONSIDERING, ANALYZING & THINKING OVER THEM, FURTHER AFTER PROPER KEEPING OF ALL LOOSE PAPERS ETC. I ALONG WIT H MY PARTNERS DISCLOSE RS.10,00,00,000/- AS UNACCOUNTED INCOME OR INVESTME NT OF MS. D.R. CONSTRUCTION FOR FY 2007-08 (ASST. YEAR 2008-09).TH IS UNACCOUNTED IS OVER & ABOVE THE REGULAR INCOME OF ME & MY PARTNERS FOR FY 2007-08 (ASST. YEAR 2008-09) WHICH IS BROUGHT BY US IN MS. D.R. CONSTRUCTION IN FY 2007-08 & THE SAME HAS NOT BEEN DISCLOSED IN THE BOOKS OF ACCOUNT. WE PROMISE TO PAY THE TAX ALONG WITH INTEREST ON TH E UNACCOUNTED INCOME WHICH IS DISCLOSED BY US IN THE FORM OF RECEIPTS & INVESTMENT FOR THE FY 2007-08 (ASST. YEAR 2008-09). Q.28 : YOU HAVE GIVEN ANSWER IN RESPONSE TO Q.NO.27 . EITHER AGAIN CLARIFY AND DISCLOSE THE DETAILS OR COMPLETELY EXPL AIN IT? A.28: IN ANSWER 27, I HAVE STATED THAT I ACCEPTED T HE UNACCOUNTED INCOME EARNED IN YEAR 2007-08 BY M/S D.R. CONSTRUCTION, AF TER CONSULTING MY FATHER SHRI VISHWANATH KHANDELWAL AND OTHERS. IN TH IS REGARD, WE DISCLOSE THAT WHATEVER PAPERS ARE BEING IMPOUNDED H AVE BEEN SEEN BY US, TOTALED BY US AND EVEN ON TOTALING AND UNDERSTANDIN G THE DIFFERENT ITEMS SHOWN IN THE PAPER WHICH IS OF OUR MODEL TOWN PARK WHICH IS BEING CONSTRUCTED BY M/S D.R. CONSTRUCTION. IN THIS PROJE CT, WHATEVER INVESTMENT AND STOCK ON SITE IS THEIR AND THE ON-MO NEY TAKEN FROM BUYERS (WHICH HAS NOT BEEN DISCLOSED IN THE BOOKS) AGGREGA TES TO RS.10,00,00,000/- (10 CRORES) WHICH IS OVER AND ABO VE THE REGULAR OR DIFFERENT FROM THE REGULAR INCOME OF MS D.R. CONSTR UCTION FOR FY 2007- 08 (ASST. YEAR 2008-09). WE HAVE ACCEPTED IN ANSWER 27 AND ITS DISCLOSURE IS AS UNDER UNACCOUNTED INVESTMENT IN RESPECT OF 17 TOWERS WHIC H ARE UNDER CONSTRUCTION AT MODEL TOWN PARK (ANNEXURE A2/16 OF IMPOUNDED DIARY PAGE 57 & 58 RS.5,0 0,00,000/- ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 11 THE STOCK OF SHED, SAND, CEMENT ETC. AT THE MODEL T OWN PARK SITE RS.90,00,000/- THE LOOSE PAPERS AT THE MODEL TOWN SITE OFFICE RELA TING TO THE PROJECT WHICH WERE IMPOUNDED RS.2,00,00,000/ - PAYMENT MADE FOR PURCHASE OF LAND OF MODEL TOWN PAR K IS NOT RECORDED IN BOOKS (ANNEXURE A 2/16 OF IMPOUN DED DIARY PAGE 60 LOWER L SIDE) RS.2,00,0 0,000/- ALL THE ABOVE ITEMS HAVE NOT BEEN RECORDED IN THE B OOKS OF M/S D R CONSTRUCTION BUT HAVE BEEN DISCLOSED DURING SURVEY AND AGREED TO PAY TAX THEREON RS.10,00,00,000/ - AT THE END, WHATEVER AMOUNT I (WE) HAVE DISCLOSED, WE HAVE PROMISED TO PAY TAX ALONG WITH INTEREST ON THE SAME. (Q.NOS.27 & 28 AS PER TRANSLATION GIVEN BY THE ASS ESSEE AND QUESTION NO.26 AND ITS ANSWER IS TRANSLATED BY US FROM VERNA CULAR). (2) THE LD. DR SUBMITTED THAT ASSESSEE HAS NOT BEEN CO-OPERATING AFTER SURVEY. HE DID NOT DECLARE THIS DISCLOSURE IN THE R ETURN OF INCOME. THE RETURN WAS NOT FILED IN THE NORMAL COURSE BUT WAS O NLY FILED IN RESPONSE TO NOTICE U/S 148(1) SHOWING NIL INCOME. (3) THE LD. CIT(A) HAS DISCUSSED THIS ISSUE IN DETA IL AND HELD THAT AMOUNT IS TAXABLE IN THE CURRENT ASST. YEAR. HE REF ERRED TO PARA 4.1 OF CIT(A)S ORDER AS UNDER :- 4.1 THE FIRST GROUND OF APPEAL IS AGAINST THE ADDI TION OF RS.10 CRORES ON ACCOUNT OF INCOME, WHICH IS ADMITTED AND DISCLOS ED AS UNACCOUNTED INCOME DURING THE COURSE OF SURVEY PROCEEDINGS, NOT OFFERED FOR TAXATION IN THE RETURN OF INCOME. IN SO FAR AS THE DISCLOSUR E OF RS.10 CRORES MADE AT THE TIME OF SURVEY IS CONCERNED, THE SAME HAS NO T BEEN DISPUTED BY THE APPELLANT AND THE APPELLANT HAS ALSO NOT RETRACTED FROM THE STATEMENT OF DISCLOSURE OF RS.10 MADE BY SHRI RAVI KHANDELWAL, P ARTNER OF THE FIRM WHILE GIVING HIS STATEMENT ON OATH U/S 131 OF THE A CT, AT THE TIME OF SURVEY U/S 133A OF THE IT ACT. FURTHER, DISCLOSURE OF UNAC COUNTED INCOME OF RS.10 CR. WAS MADE AFTER SHRI KHANDELWAL HAD VERIFI ED THE BOOKS OF ACCOUNT AND DOCUMENTS OF THE FIRM FOUND DURING THE COURSE OF SURVEY, AS ALSO VARIOUS ENTRIES FOUND IN THE BOOKS OF A/C AT T HAT TIME. THE APPELLANT HAS, HOWEVER, NOT SHOWN THE DISCLOSURE AMOUNT AS IN COME IN THE RETURN OF ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 12 INCOME FILED FOR THE YEAR UNDER CONSIDERATION ON TH E GROUND THAT THE ABOVE AMOUNT HAS BEEN SHOWN AS ADVANCES IN THE BOOK S OF A/C. AND CORRESPONDING DEBIT ENTRIES HAVE BEEN MADE TO THE W IP A/C. THE APPELLANTS SUBMISSION IS THAT RS.10 CRORES IS INCL UDED IN THE BOOKING ADVANCES OF RS.11,74,81,450/- SHOWN IN THE BALANCE- SHEET AS ON 31.3.2009 AND IS ALSO INCLUDED IN THE CONSTRUCTION, ADMINISTRATIVE AND OTHER EXPENSES AGGREGATING TO RS.12,95,73,503/-, WH ICH HAVE BEEN TRANSFERRED TO THE WIP A/C. THE APPELLANT HAS, THUS , BY PASSING THE ABOVE ENTRIES IN THE BOOKS OF A/C POST SURVEY, NULLIFIED THE EFFECT OF DISCLOSURE OF INCOME OF RS.10 CRORES MADE DURING THE COURSE OF SU RVEY. THE MOOT QUESTION ARISING, THEREFORE, IS WHETHER THE INCOME OFFERED BY THE APPELLANT AT THE TIME OF SURVEY CAN BE SHOWN AS ADVANCES RECE IVED FROM THE CUSTOMERS AND TAKEN TO WIP A/C. BY MAKING CORRESPON DING DEBITS UNDER VARIOUS EXPENSE HEADS. IT IS SEEN THAT OUT OF RS.10 CRORES OF DISCLOSURE MADE, RS.2.10 CRORES ONLY RELATED TO PAYMENT OF ON MONEY MADE IN CASH DURING THE YEAR THROUGH THE BROKERS FOR PURCHASE OF LAND FOR MODEL TOWN PARK, MAGOB, SURAT WHICH IS NOT RECORDED ANYWHERE I N THE BOOKS OF A/C. OF THE APPELLANT FIRM ON THE DATE OF SURVEY. THUS, AS FAR AS THIS AMOUNT IS CONCERNED, PARTNER OF THE FIRM HIMSELF ADMITTED THA T ON THE DATE OF SURVEY IT IS ON MONEY PAYMENT MADE FOR PURCHASE OF LAND NOT RECORDED IN THE BOOKS OF A/C., WHICH CLEARLY MEANS THAT THIS AMOUNT HAS BEEN PAID OUT OF THE BOOKS OF A/C AS ON THE DATE OF SURVEY AND, THER EFORE, COULD NOT HAVE BEEN BROUGHT BY THE APPELLANT IN THE REGULAR BOOKS OF A/C BY WAY OF ADVANCES AND MAKING CORRESPONDING DEBIT IN THE WIP A/C. SIMILARLY, OUT OF THE ABOVE RS.10 CRORES, DISCLOSURE OF RS.5 CRORE S AND RS.2 CRORES (TOTAL RS.7 CRORES) HAS BEEN MADE ON ACCOUNT OF UNACCOUNTE D INVESTMENT IN MODEL TOWN PARK AND UNEXPLAINED INVESTMENT/EXPENSES IN THE PAPERS FOUND AND IMPOUNDED FROM THE OFFICE AT MODEL TOWN P ARK. THE APPELLANT, THEREFORE, AT THE TIME OF SURVEY ADMITTED THAT THE ABOVE TWO AMOUNTS HAVE NO RELATION WITH THE ADVANCES AND THEY ARE UNACCOUN TED INVESTMENT ON THE DATE OF SURVEY AND OBVIOUSLY NOT RECORDED IN TH E BOOKS OF ACCOUNT. THE BALANCE OF RS.90 LACS WAS DISCLOSED ON ACCOUNT OF UNACCOUNTED STOCK OF CEMENT, STEEL, RETI AND OTHER BUILDING MATERIAL FOUND AT THE SITE OFFICE AT MODEL TOWN PARK ON THE DATE OF SURVEY. THESE MATERI ALS WERE ALSO NOT RECORDED IN THE BOOKS OF ACCOUNT AND ADMITTED BY TH E APPELLANT TO BE UNACCOUNTED STOCK. THEREFORE, THIS AMOUNT WAS ALSO NOT REPRESENTED BY ANY ADVANCES. THE APPELLANT HAS NOT RETRACTED FROM THE DISCLOSURE MADE DURING THE COURSE OF SURVEY TO THE EXTENT OF RS.10 CRORES. IT MEANS THE APPELLANT HAS NO EXPLANATION TO ESTABLISH THE SOURC E OF RS.10 CRORES REPRESENTED BY UNACCOUNTED INVESTMENT, STOCK AND O N MONEY MADE IN CASH FOR THE PURCHASE OF LAND, AND, IT IS BECAUSE O F THIS REASON THAT THE INCOME FROM WHICH THE ABOVE AMOUNT HAS BEEN PAID OR EXPENDED AND HAS NOT BEEN OFFERED TO TAX EITHER IN EARLIER YEARS OR NOT RECORDED IN THE BOOKS ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 13 OF ACCOUNT IN THE YEAR UNDER CONSIDERATION UPTO THE DATE OF SURVEY, THE SAME HAS, THEREFORE, BEEN OFFERED FOR TAXATION AS U NACCOUNTED INCOME. THE APPELLANT HAS, IN THIS REGARD ALSO DISREGARDED THE PROVISO TO SECTION 69C OF THE ACT WHICH PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPEN DITURE WHICH IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT BE ALLOWED AS A DE DUCTION UNDER ANY HEAD OF THE INCOME. IT IS ALSO RELEVANT TO NOTE THAT THE INCOME OFFERED BY THE APPELLANT AS UNACCOUNTED INCOME DURING THE COURSE OF SURVEY I S IN THE NATURE OF DEEMED INCOME. THE ISSUE OF HEAD OF DEEMED INCOM E U/S 69, 69A, 69B AND 69C HAS SINCE BEEN CONSIDERED ON FIRST PRINCIPL ES IN THE GUJARAT HIGH COURT DECISION IN THE CASE OF FAKIR MOHAMED HAJI HA SAN VS. CIT (2001) 247 ITR 290 (HUJ). (4) ON THE BASIS OF DECISION OF HON. GUJARAT HIGH C OURT IN THE CASE OF FAKIR MOHAMED HAJI HASAN VS. CIT (SUPRA) THE LD. DR SUBMITTED THAT BY VIRTUE OF DEEMING PROVISIONS OF SECTION 68, 69, 69A , 69B & 69C THE EXPENDITURE INCURRED BY THE ASSESSEE AS ADMITTED BY HIM IN THE STATEMENT RECORDED U/S 133A WILL NOT FORM PART OF BOOK PROFIT BUT WOULD BE TAXED AS DEEMED INCOME SEPARATELY. HE ALSO EMPHASIZED UPON T HE OBSERVATION OF THE HON. COURT FROM THAT JUDGMENT AS REFERRED TO BY LD. CIT(A) ON PAGES 20 & 21 OF HIS ORDER. (5) THE LD. DR FURTHER POINTED OUT THAT IN VIEW OF ABOVE DECISION OF HON. GUJARAT HIGH COURT, THE EXPENDITURE SO INCURRE D BY THE ASSESSEE OUTSIDE THE BOOKS WOULD BE DEEMED INCOME AND NO OTH ER EXPENDITURE WOULD BE ALLOWED AS SET OFF AGAINST IT INCLUDING TH E EXPENDITURE WHICH IS TAXED AS DEEMED INCOME U/S 69C. HE SUBMITTED THAT U NACCOUNTED EXPENDITURE TAXED AS DEEMED INCOME CANNOT BE SET OF F AGAINST THE SAME EXPENDITURE OTHERWISE PROVISIONS OF SECTION 69C WOU LD BECOME OTIOSE. (6) THE LD. DR SUBMITTED THAT THE PROJECT COMPLETIO N METHOD ON WHICH ASSESSEE IS HEAVILY RELYING ON, CANNOT BE INVOKED I N THE CONSTRUCTION CASES. THE PROJECT COMPLETION METHOD IN RESPECT OF CONTRACTS ENTERED INTO ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 14 ABOVE PROJECTS UNDERTAKEN AFTER 1.4.2003 CANNOT BE APPLIED. THE REVISED ACCOUNTING STANDARD AS-7 POINTED OUT THAT PROJECT C OMPLETION METHOD AS ONE OF THE TWO METHODS FOR ACCOUNTING CONSTRUCTION CONTRACT WAS ERRONEOUS EVEN FOR ACCOUNTING PURPOSES. THE LD. DR REFERRED TO THE JUDGMENT AND OTHER REFERENCES AS POINTED OUT BY THE LD. CIT(A) ON PAGE 24 TO 28 OF HIS ORDER. (7) SO FAR AS UNACCOUNTED INVESTMENT IN LAND TO THE EXTENT OF RS. 2,10,00,000/- IS CONCERNED THIS COULD BE DONE ONLY PRIOR TO INITIATING THE PROJECT AND ON MONEY ALLEGEDLY RECEIVED ON BOOKIN G OF FLATS. WHEN FLATS ARE READY AND THE PROJECT HAS NOT TAKEN SHAPE INVES TMENT IN LAND WILL HAVE TO BE MADE FROM ASSESSEES OWN POCKET AND, THEREFOR E, SUCH UNACCOUNTED INVESTMENT IN LAND CANNOT BE COVERED BY ANY ALLEGED RECEIPT OF ON MONEY FROM BOOKING OF FLATS. (8) THE LD. DR SUBMITTED THAT ASSESSEE HAS TRIED TO SHOW AND COVER THE UNACCOUNTED EXPENDITURE BY RECEIPT OF ON MONEY. S INCE ASSESSEE HAS NOT GIVEN DETAILS OF THE PARTIES FROM WHOM SUCH ON MON EY WAS RECEIVED THE UNACCOUNTED EXPENDITURE CANNOT BE SET OFF OR CANNOT BE SAID TO BE EXPLAINED FROM THE ALLEGED RECEIPT OF ON MONEY. T HE ASSESSEE HAS STATED THAT RS.10 CRORES IS UNACCOUNTED EXPENDITURE AND HE IS NOT ABLE TO CO- RELATE ANY ITEM OF THE EXPENDITURE WITH THE RECEIPT OF ON MONEY THEN ASSESSEE SHOULD BE TAXED ONLY ON THE BASIS OF UNACC OUNTED EXPENDITURE WHICH REMAINED UNEXPLAINED AND, THEREFORE, RS.10 CR ORES SHOULD BE TAXED IN ASST. YEAR 2008-09 ONLY AS UNDECLARED EXPENDITUR E. IT IS A TRITE LAW THAT IF INVESTMENT IS UNEXPLAINED IT SHOULD BE TAXED U/S 69C. THE ASSESSEE HAS DECLARED UNACCOUNTED EXPENDITURE AS HIS INCOME AND NOT RECEIPT OF ON MONEY AS HIS INCOME. SINCE UNACCOUNTED EXPENDITURE SOUGHT TO BE EXPLAINED FROM UNACCOUNTED ON MONEY AND SUCH EXPLAN ATION IS PRIMA ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 15 FACIE NOT SATISFACTORY IN THE SENSE THAT THERE IS N O DETAILS AS TO FROM WHOM SUCH ON MONEY WAS RECEIVED, THE SOURCE OF UNACCOUNT ED EXPENDITURE SHOULD BE TREATED AS NOT SATISFACTORILY EXPLAINED A ND THUS COVERED BY SECTION 69C. (9) IT IS NOT BELIEVABLE AS CLAIMED BY THE ASSESSEE THAT HE WOULD HAVE RECEIVED ON MONEY FROM 130 PERSONS. ASSESSEE IS ONL Y TRYING TO GIVE TWIST TO THE CASE AND AVOIDING TO PAY TAXES ON ACCO UNTED EXPENDITURE OF RS.10 CRORES. (10) FINALLY THE LD. DR SUMMARISED HIS ARGUMENTS SA YING THAT - (I) THAT THERE IS AN UNEQUIVOCAL DISCLOSURE OF INCOME I N ASST. YEAR 2008-09 IN TERMS OF UNACCOUNTED EXPENDITURE. (II) NO DETAIL AS TO HOW DISCLOSURE REPRESENTED IN VARIO US ASSETS IS GIVEN. (III) STATEMENT IS NOT RETRACTED WHICH STILL STANDS. (IV) NOT OFFERING DISCLOSURE AMOUNT AS ON MONEY, NOW, IS ONLY AN AFTER THOUGHT. (V) THE CERTIFICATE OF AUDITOR IS SELF SERVING AND CANN OT BE RELIED UPON THAT SUM OF RS.10 CRORES IS ON MONEY. (VI) STAND OF LD. CIT(A) THAT THIS SUM IS TAXABLE U/S 69 C IS CORRECT. (VII) IT IS NOT POSSIBLE TO COLLECT SUM OF RS.10 CRORES F ROM 130 PERSONS. NO DETAILS OF SUCH PERSONS ARE GIVEN. (VIII) APPARENTLY THE DATE OF APPLICATION OF MONEY IS EARL IER AS COMPARED TO DATE OF COLLECTION. (IX) IF SUM OF RS.10 CRORES IS TREATED AS CREDIT IN THE BOOKS AS ON MONEY AND SINCE IT IS NOT EXPLAINED IT SHOULD BE AL TERNATIVELY TAXED U/S 68. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 16 (X) NO DEDUCTION U/S 80IB SHOULD BE ALLOWED AS IT IS NO T PROVED THAT RS.10 CRORES IS BOOKING RECEIPT. (XI) THE DECISION OF HON. GUJARAT HIGH COURT IN RADHY DE VELOPERS IS NOT APPLICABLE WHICH WAS APPLICABLE PRIOR TO 1.4 .99 AND NOT IN ASST. YEAR 2008-09. (XII) THERE IS AN AMENDMENT IN THE ACT IN SECTION 69 C BY WAY OF INSERTION OF PROVISO WHICH PROHIBITS ALLOWING ANY E XPENDITURE AGAINST DEEMED INCOME TAXED UNDER SECTION 69C. (XIII) ACCORDING TO THE LD. DR SUCH EXPENDITURE WHICH IS T REATED AS DEEMED INCOME, CANNOT BE ALLOWED AS DEDUCTION UNDER ANY OTHER HEAD AS WELL, 11. IN REJOINDER THE LD. AR SUBMITTED THAT THERE IS NO EVIDENCE IN SUPPORT OF THE STATEMENT THAT EITHER THERE IS ANY E XPENDITURE OR THERE IS ANY ON MONEY RECEIVED. THE STATEMENT SHOULD BE RE AD AS A WHOLE. IF THERE IS A STATEMENT FOR EXPENDITURE THEN THERE IS ALSO A STATEMENT FOR ON MONEY. REVENUE HAS NOT RELIED UPON ANY DOCUMENT TH OUGH CLAIMED BUT NO COPY THEREOF HAS BEEN PROVIDED TO US. THE DISCLO SURE WAS TAKEN JUST FOR THE SAKE OF TAKING DISCLOSURE. STATEMENT U/S 133A I S NOT BINDING ON THE ASSESSEE, BECAUSE THERE IS NO MATERIAL EVIDENCE IN SUPPORT OF SUCH STATEMENT. EVEN THE QUESTION NO.26 PUT UP BY SURVEY OFFICERS TALKED ABOUT ON MONEY RECEIVED ON BOOKING OF FLATS, THEN THERE IS NO QUESTION OF IGNORING THE SAME. AS PER STATEMENT ITSELF EXPEN DITURE IS DIRECTLY RELATED TO RECEIPT OF ON MONEY. THEREFORE, SUCH E XPENDITURE IS EXPLAINED FROM THE SOURCE WHICH IS ON MONEY. THUS IT CANNOT BE TAXED U/S 69C. THE ONUS IS ON THE REVENUE THAT ON MONEY SO RECEI VED IS TAXABLE IN ASST. YEAR 2008-09. FURTHER REVENUE CAN TAX ON MON EY ALONG WITH SALE PROCEEDS OF THE FLATS AND CANNOT BE TAXED SEPARATEL Y I.E. ON MONEY RECEIPT IN CASH IN ASST. YEAR 2008-09 ON CASH BASIS AND CHEQUE MONEY ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 17 RECEIVED ON BOOKING OF FLATS IN ASST. YEAR 2009-10 AND 2010-11. SINCE BOTH RELATE TO SAME ITEM, BOTH CAN BE TAXED TOGETHE R. BOTH WILL ACCRUE AS INCOME SIMULTANEOUSLY IN THE MERCANTILE SYSTEM OF A CCOUNTING. ACCOUNTING AS-7 IS APPLICABLE IN CASE OF BUILDER BU T IS NOT APPLICABLE IN THE CASE OF CONTRACTOR. ASSESSEE IS NOT A CONTRACTO R BUT HE IS A BUILDER AND, THEREFORE, HIS INCOME CAN ONLY BE TAXED ON PROJECT COMPLETION METHOD, WHEN BOTH INCOME AND EXPENDITURE CAN BE CONSIDERED TOGETHER. EVEN THOUGH PARTNER OF THE ASSESSEE FIRM HAS STATED THAT IT IS HIS INCOME FOR ASST. YEAR 2008-09 BUT HE IS TALKING IN TERMS OF RE CEIPT AND HE IS NOT EXPECTED TO UNDERSTAND IT IN LEGAL SENSE. IF ASSESS EE HAS RIGHT TO REVISE A RETURN AND THEN ASSESSEE HAS ALSO A RIGHT TO REVISE HIS STATEMENT WRONGLY GIVEN THAT IT IS INCOME FOR ASST. YEAR 2008-09. A L EGAL MISTAKE DONE BY THE ASSESSEE CAN ALWAYS BE RECTIFIED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. UNDISPUTED FACTS OF THE CASE ARE THAT DU RING THE COURSE OF SURVEY SHRI RAVI KHANDELWAL PARTNER OF THE FIRM HAS STATED AS PER TRANSLATION OF STATEMENT REFERRED TO ABOVE, THAT HE HAS RECEIVED ON MONEY ON BOOKING OF FLATS WHICH HAS BEEN SPENT AS PER DETAILS GIVEN ABOVE. BOTH THE ELEMENTS I.E. RECEIPT OF ON MONEY AND INCURRING OF EXPENDITURE/INVESTMENT ARE STATED IN THE STATEMENT. REVENUE IS RELYING MERELY ON ONE PART OF THE STATEMENT THAT ASSESSEE H AS MADE UNACCOUNTED INVESTMENT AND, THEREFORE, IT SHOULD BE TAXED U/S 6 9C WHEREAS ASSESSEE IS EMPHASIZING THAT EXPENDITURE IS ONLY OUT OF ON MON EY. THE STATEMENT IS NOT RETRACTED. SHRI RAVI KHANDELWAL HAS ALSO STATED THAT SUM OF RS.10 CRORES IS HIS INCOME FOR ASST. YEAR 2008-09 BUT THE SAME HAS NOT BEEN DECLARED IN THE RETURN FILED IN RESPONSE TO NOTICE U/S 148(1) WHEREIN THE INCOME IS DECLARED NIL. THE ASSESSEE HAS SOUGHT NOW TO TAKE THE STAND THAT THE SUM OF RS.10 CRORES IS NOT AN INCOME FOR A SST. YEAR 2008-09 BUT ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 18 WOULD BE THE INCOME WHEN FLATS ARE SOLD. IT HAS ALS O TAKEN THE STAND THAT IT IS FOLLOWING PROJECT COMPLETION METHOD AND, THEREFO RE, ENTIRE INCOME/EXPENDITURE WOULD BE TAXED ONLY WHEN PROJECT IS COMPLETED WHICH IS NOT IN ASST. YEAR 2008-09. FURTHER, AFTER EXAMINING AS-7 WE ARE OF THE CONSIDERED VIEW THAT THIS WOULD BE APPLICABL E TO BUILDER AND NOT TO THE CONTRACTOR. IN THE REVISED AS-7 CONTRACT REVENU E AND EXPENDITURE ARE RECOGNIZED ON COMPLETION OF THE PROJECT AS UNDER :- 21. WHEN THE OUTCOME OF A CONSTRUCTION CONTRACT CA N BE ESTIMATED RELIABLY, CONTRACT REVENUE AND CONTRACT COSTS ASSOCIATED WITH THE CONSTRUCTION CONTRACT SHOULD BE RECOGNIZED AS REVENUE AND EXPENSES RESPECTIVELY BY REFERENCE TO THE STAGE OF COMPLETION OF THE CONTRACT ACTIVITY AT THE REPORTIN G DATE. AN EXPECTED LOSS ON THE CONSTRUCTION CONTRACT SHOULD BE RECOGNIZED AS AN EX PENSE IMMEDIATELY IN ACCORDANCE WITH PARAGRAPH 35. HOWEVER, IN THE PRESENT CASE WE NOTICE THAT ASSESSE E HAS NOT EXACTLY FOLLOWED PROJECT COMPLETION METHOD AS THE DATE OF C OMPLETION OF THE PROJECT AND REALIZING OF REVENUE ARE DIFFERENT. IT HAS CONTINUED TO SELL THE FLATS IN 3 DIFFERENT ASST. YEARS ENDING ON MARCH 20 10 AND MARCH, 2011 AND, THEREFORE, REVENUE HAS TO BE RECOGNIZED ON MER CANTILE BASIS AS AND WHEN FLATS ARE SOLD. THE AUDITORS HAVE GIVEN A CERT IFICATE AS TO HOW DIFFERENT FLATS ARE SOLD AS UNDER :- SL.NO. PARTICULARS 31.03.2010 15.03.2011 TOTAL 1 NO. OF RESIDENTIAL UNITS SOLD 141 53 194 NO. OF SHOPS SOLD 8 2 10 TOTAL UNITS SOLD 149 55 204 2 AREA SOLD (SQ.FT.) 129879 56487 186366 TOTAL SALEABLE AREA 310204 SQ.FT. 3 SALES CONSIDERATION AS PER DOCUMENT (RS.) 89485405 36525340 126010745 ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 19 4 PROPORTIONATE BOOKING ADVANCE OUT OF DISCLOSURE OF RS.10 CRORES (RS.) 41868899 1,82,09,630 6,00,78,529 5 TOTAL SALES 131354304 54734970 186089274 FURTHER WE ALSO NOTICE THAT EVEN THOUGH REVENUE HAS HEAVILY RELIED UPON THE STATEMENT OF SHRI RAVI KHANDELWAL BUT DOCUMENTS WHICH WOULD HAVE REFLECTED EXPENDITURE OR RECEIPT OF ON MONEY AND WHICH IS CLAIMED TO BE THE BASIS FOR DISCLOSURE IS NOT PROVIDED TO US. EVE N THE ASSESSEE HAS ALLEGED THAT COPY OF SUCH DOCUMENT IS NOT PROVIDED TO HIM. THEREFORE, IT IS NOT PROVED THAT ANY STATEMENT GIVEN BY THE ASSES SEE IS SUPPORTED BY ANY MATERIAL EVIDENCE IN THE FORM OF LOOSE PAPER ETC. W HICH IS CLAIMED TO BE FOUND DURING THE SURVEY. IF THERE WERE SUCH DOCUMEN TS REVENUE SHOULD HAVE PRODUCED THEM BEFORE US SO AS TO STRENGTHEN TH E DISCLOSURE MADE IN THE STATEMENT. 13. IN OUR CONSIDERED VIEW IF ASSESSMENT HAS TO BE FRAMED ENTIRELY ON THE BASIS OF STATEMENT OF SHRI RAVI KHANDELWAL WHIC H IS ADMITTEDLY NOT RETRACTED BY THE ASSESSEE THEN ENTIRE STATEMENT SHO ULD BE READ AS A WHOLE AND RELIANCE CANNOT BE PLACED OR INFERENCE CANNOT B E DRAWN FROM PART OF THE STATEMENT. IF INVESTMENT/EXPENDITURE IS ACCEPTE D TO HAVE BEEN MADE OUTSIDE THE BOOKS ON THE BASIS OF STATEMENT GIVEN B Y SHRI RAVI KHANDELWAL THEN RECEIPT OF ON MONEY ON BOOKING OF FLATS SHOULD ALSO BE ACCEPTED ON THE BASIS OF SAME STATEMENT UNLESS HEAV IER EVIDENCE IN THE FORM OF SUPPORTING EVIDENCE WHICH COULD ONLY SHOW T HE INCURRING OF EXPENDITURE/INVESTMENT OUTSIDE THE BOOKS BUT NO REC EIPT OF ON MONEY ARE PRODUCED BEFORE US, WHICH IN FACT IS NOT DONE, IF T HERE WERE ANY. THEREFORE, THE FACTUM OF RECEIPT OF ON MONEY IS T O BE ACCEPTED IN THE SAME WAY AS FACTUM OF INCOME/EXPENDITURE IS ACCEPTE D ON THE BASIS OF ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 20 SAME STATEMENT OF SHRI RAVI KHANDELWAL. NO REASONS ARE ADVANCED AS TO WHY ONLY THE FACTUM OF INCURRING EXPENDITURE/INVEST MENT SHOULD ALONE BE ACCEPTED AND NOT THE RECEIPT OF ON MONEY. THE LD. DR HAD EMPHASIZED THAT THERE IS NO EVIDENCE/DETAILS OF RECEIPT OF ON MONEY THEN SIMILARLY THERE IS NO EVIDENCE OF EXPENDITURE/INVESTMENT OUTS IDE THE BOOKS. THEREFORE, RELIANCE IS ONLY PLACED ON THE STATEMENT OF SHRI RAVI KHANDELWAL THOUGH IT REMAINED UNSUBSTANTIATED. ONL Y FOR THE REASONS THAT THE SAME IS NOT RETRACTED ITS CONTENTS ARE ACC EPTED AS REPRESENTING THE EVENTS ACTUALLY HAPPENED. IN OTHER WORDS, IF EVENTS /TRANSACTION REGARDING INCURRING OF EXPENDITURE/INVESTMENT IS ACCEPTED AS ACTUALLY HAPPENED THEN EVENTS/TRANSACTIONS REPRESENTING RECEIPT OF ON MON EY WOULD ALSO BE ACCEPTED AS HAPPENED. FROM THIS IT FOLLOWS THAT EXP ENDITURE/INVESTMENT IS EXPLAINED IN THE STATEMENT AS COMING OUT OF ON MON EY AND, THEREFORE, PROVISIONS OF SECTION 69C CANNOT BE INVOKED AND AS SUCH EXPENDITURE/INVESTMENT IS EXPLAINABLE FROM ON MONE Y. IF WE GO THROUGH THE STATEMENT OF SHRI RAVI KHANDELWAL WHICH IS CLEA R THAT FIRST EVENT/TRANSACTION STATED BY HIM IS ABOUT RECEIPT OF ON MONEY AND THEREAFTER THE DETAILS THEREOF EXPENDITURE/INVESTME NT IS GIVEN. THEREFORE, WHAT CAN BE TAXED IS ONLY THE ON MONEY AS INCOME NOT EXPENDITURE/INVESTMENT UNDER SECTION 69C. THEREFORE , THE RELEVANT PART OF THE ARGUMENT OF LD. DR THAT PROVISION OF SECTION 69 C SHOULD BE INVOKVED AND EXPENDITURE/INVESTMENT SHOULD BE TAXED AS DEEME D INCOME REJECTING THE OTHER PART OF THE STATEMENT REGARDING RECEIPT O F ON MONEY IS NOT ACCEPTABLE AND HENCE REJECTED. 14. ONCE WHAT IS TO BE TAXED IS ON MONEY THEN IT HAS TO BE EXAMINED WHEN CAN IT BE TAXED. WHETHER IT CAN BE TAXED IN AS ST. YEAR 2008-09 ON THE BASIS OF STATEMENT OF SHRI RAVI KHANDELWAL ALON E? IN OUR CONSIDERED VIEW THE STATEMENT THAT ON MONEY IS INCOME IS A GEN ERIC FORM OF SAYING ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 21 RECEIPT AS INCOME AND NOT IN THE SENSE OF TRUE INTE RPRETATION OF THE TERM INCOME AS PER I.T. ACT. ON MONEY AS SUCH CANNOT BE TAXED ALONE UNLESS IT IS PROVED THAT ALL THE EXPENDITURE INCURR ED ON THE PROJECT WAS RECORDED IN THE BOOKS OF ACCOUNT AND ON MONEY COM PONENT WAS OVER AND ABOVE THE RECEIPTS RECORDED IN THE BOOKS. NO SU CH EVIDENCE HAS BEEN FURNISHED. TO THE CONTRARY IT IS UNDISPUTED POSITIO N THAT OUT OF THIS ON MONEY ASSESSEE HAS INCURRED VARIOUS EXPENDITURE/INV ESTMENT. THEREFORE, ON MONEY AS SUCH AND AS A WHOLE CANNOT BE TAXED O VER AND ABOVE THE INCOME ACCRUING ON THE BASIS OF ENTRIES RECORDED IN THE BOOKS OF ACCOUNT. FROM THIS IT FOLLOWS THAT ON MONEY HAS TO BE TREA TED AS REVENUE RECEIPT AND NOT PURELY INCOME. THE EXPLANATION OF THE LD. A R IN THIS REGARD HAS TO BE ACCEPTED WHICH IS ALSO SUPPORTED BY THE STATEMEN T OF SHRI RAVI KHANDELWAL WHEN READ AS A WHOLE. THUS RS.10 CRORES AS SUCH CANNOT BE INCOME SEPARATELY TAXABLE TAKING IT IN ISOLATION OF EXPENDITURE INCURRED BY THE ASSESSEE AGAINST SUCH RECEIPT. THEREFORE, BOTH ON MONEY AS WELL AS EXPENDITURE/INVESTMENT HAS TO BE SEPARATELY ACCOUNT ED FOR/ADDED TO THE DECLARED RECEIPTS AND DECLARED EXPENDITURE/INVESTME NT AS PER BOOKS TO WORK OUT TOTAL INCOME ACCRUED TO THE ASSESSEE AND T OTAL EXPENDITURE/INVESTMENT INCURRED BY IT. 15. THE NEXT ISSUE COMES AS TO WHEN THE INCOME OUT OF SUCH RECEIPT WOULD ACCRUE TO THE ASSESSEE. IN OUR CONSIDERED VIE W RECEIPT OF ON MONEY IS PART AND PARCEL OF MONEY RECEIVED ON SALE OF FLATS BY CHEQUE. THE AMOUNT RECEIVED BY CHEQUE BEFORE ACTUALLY TRANS FERRING THE FLATS TO THE PURCHASERS WILL BE IN THE NATURE OF ADVANCE AND CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. ASSESSEE HAS INCURRED EXPE NDITURE/INVESTMENT IN THE PROJECT IN VARIOUS YEARS BUT INCOME TO IT WILL ACCRUE ONLY WHEN FLATS ARE SOLD TO THE BUYERS. ADVANCE MONEY RECEIVED BY T HE ASSESSEE CAN NEVER BE HIS INCOME. IT WOULD ONLY BE A LIABILITY SHOWN I N THE BALANCE SHEET AS ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 22 ADVANCES FROM THE CUSTOMERS AND WILL BE ADJUSTED AG AINST THE SALE PROCEEDS OF THE FLATS WHEN FLATS ARE TRANSFERRED TO THE PURCHASERS. THEREFORE, ACCRUAL OF INCOME TO THE ASSESSEE WILL N OT ARISE ON THE DATE WHEN IT RECEIVES CHEQUE OR CASH AGAINST SALE ON FLA TS BUT WILL ARISE WHEN FLATS ARE TRANSFERRED TO THE BUYERS. TILL THEN IT W ILL ONLY BE AN ADVANCE. WE NOTICE THAT ASSESSEE HAS BOOKED THE FLATS FROM ASST . YEAR 2008-09 ON WARDS AND RECEIVED ADVANCES BY WAY OF CHEQUE. IT HA S ALSO RECEIVED ADVANCE IN CASH WHICH IS NOW DECLARED AS ON MONEY IN THE STATEMENT GIVEN BY SHRI RAVI KHANDELWAL. IN A CHART GIVEN BEF ORE US BY THE ASSESSEE, NAMES OF THE PROSPECTIVE BUYERS AND THEIR PANS HAVE ALSO BEEN GIVEN AND ALSO THE DATE OF BOOKING. THERE WERE 122 SUCH BUYERS AND FROM WHOM ON MONEY IN CASH TO THE EXTENT OF RS.10 CROR ES IS STATED TO BE RECEIVED. THE OUTSTANDING AMOUNT AGAINST THEM IS AL SO SHOWN. THE AREA OF THE PREMISES BOOKED, RATE AT WHICH IT IS BOOKED AND THE DATE OF BOOKING ALL FALL IN THE FY 2006-07 AND 2007-08. BUT AS PER CERTIFICATE OF THE AUDITOR WHOSE CONTENTS ARE REFERRED TO ABOVE, ASSES SEE HAS SOLD TOTAL 149 UNITS IN FY 2009-10 AND 55 UNITS IN FY 2010-11 UPTO 15.03.2011. IT HAS SHOWN TO HAVE ADJUSTED A SUM OF RS.4,18,68,899/- OU T OF RS.10 CRORES AGAINST SALE OF 149 FLATS/SHOPS AND OF RS.1,82,09,6 30/- AGAINST SALE OF 55 FLATS/SHOPS. THE REVENUE IS ACCORDINGLY RECOGNIZED ONLY WHEN FLATS/SHOPS ARE SOLD AND, THEREFORE, BOTH CHEQUE PORTION/CASH P ORTION BEING THE ON MONEY WOULD ACCRUE TO THE ASSESSEE IN THE YEAR WHE N FLATS/SHOPS ARE SOLD. THEREFORE, IN NO WAY SUM OF RS.10 CRORES AS A WHOLE CAN BE TAXED IN ASST. YEAR 2008-09 ON THE BASIS OF EXPENDITURE AS D EEMED INCOME U/S 69C. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 23 16. NOW WE DISCUSS CERTAIN AUTHORITIES REFERRED TO BY THE PARTIES. (1) THE LD. DR HAS RELIED ON THE DECISION OF HON. P UNJAB & HARYANA HIGH COURT IN THE CASE OF NATIONAL LEGGUARD WORKS V S. CIT(A) & ANR. (2007) 288 ITR 18 (P& H). IN THIS CASE INCOME WAS S URRENDERED DURING THE COURSE OF SURVEY FOLLOWING THE DETECTION OF UNE XPLAINED STOCK. ASSESSEE SOUGHT TO TREAT SUCH INCOME AS INCOME FROM EXPORTS AND CLAIMED DEDUCTION U/S 80 HHC. ON THE BASIS OF THIS JUDGMENT LD. DR SOUGHT TO ARGUE THAT ASSESSEE WOULD NOT BE ENTITLED TO DEDUCT ION U/S 80IB ON SUCH UNACCOUNTED RECEIPT OF ON MONEY REPRESENTING UNAC COUNTED EXPENDITURE/INVESTMENT. IN OUR CONSIDERED VIEW THE ISSUE WHETHER ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S 80IB ON THE DISCLOSED AMOUNT IS NOT BEFORE US AS WE HAVE HELD THAT NO INCOME ACC RUED TO THE ASSESSEE IN ASST. YEAR 2008-09 OUT OF RECEIPT OF ON MONEY. (2) D.M.NETERWALLA VS. CIT (1980) 122 ITR 880 (BOM) . THIS AUTHORITY WAS CITED BY THE LD. DR FOR THE PROPOSITION THAT IF UNACCOUNTED INCOME/EXPENDITURE IS SOUGHT TO BE EXPLAINED BY REC EIPT OF ON MONEY THEN SUCH ON MONEY REMAINED UNEXPLAINED AND THEREFO RE, IT SHOULD BE TAXED U/S 68 AND SUCH ALTERNATIVE NEW CONTENTION C AN BE ALLOWED BY THE TRIBUNAL. THERE IS NO DISPUTE ABOUT THIS PROPOSITIO N. HOWEVER, NEITHER UNACCOUNTED INCOME/EXPENDITURE IS RECORDED IN THE B OOK NOR THE ON MONEY. UNLESS A CREDIT IS FOUND ENTERED IN THE BOO KS, PROVISIONS OF SECTION 68 CANNOT BE INVOKED. (3) CIT VS. D.P. SANDU BROS. CHEMBUR (P) LTD. (2005 ) 273 ITR 1 (SC). THE LD. AR HAS REFERRED TO THIS AUTHORITY. IT RELATED TO TAXING OF CASUAL AND NON-RECURRING RECEIPTS BEING SURRENDERED OF TENANCY RIGHTS. AS PER LAW PRIOR TO AMENDMENT IN SECTION 55(2), HON. S UPREME COURT HELD ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 24 THAT IF AN INCOME IS INCLUDED UNDER ANY ONE OF THE HEADS AS SPECIFIED IN SECTION 14 BEING ITEMS A TO E THEN IT CANNOT BE BRO UGHT TO TAX U/S 56 AS CASUAL AND NOT RECEIPT. IF THE INCOME CANNOT BE TAX ED U/S 45 IT CANNOT BE TAXED AT ALL. THE LD. AR SOUGHT TO DRAW PARALLAL TO THE FACTS OF THE PRESENT CASE BY ARGUING THAT IF INCOME DOES NOT ACCRUE IT C ANNOT BE TAXED. IN OUR CONSIDERED VIEW THE FACTS OF THIS CASE ARE DIFFEREN T AND CANNOT BE APPLIED THE WAY IT SOUGHT TO BE DONE BY LD. AR. (4) KRISHNA TEXTILES VS. CIT (2009) 310 ITR 227 (GU J). ON THE BASIS OF THIS JUDGMENT LD. AR SOUGHT TO ARGUE THAT IF AN EXPENDITURE/INVESTMENT IS TAXED U/S 69C THEN EXPENDITURE SHOULD BE ALLOWED U/S 37(1). HOWEVER, THIS AUTHORITY WOULD NOT BE APPLICABLE AFTER 1.4.99 BECAUSE OF INSERTION OF PROVISO TO SECTION 69C WHICH PROHIBITS ALLOWABILITY OF ANY EXPENDITURE AGAINST DEEMED INCOME AS PER SECTION 69C. (5) FAKIR MOHMED HAJI HAZAN VS. CIT (2001) 247 ITR 290 (GUJ). THE LD. DR RELIED ON THIS AUTHORITY. IT HAS ALREADY BEE N OBSERVED ABOVE BY US THAT PROVISIONS OF SECTION 69C WOULD NOT BE APPLICA BLE ON THE FACTS OF THE PRESENT CASE, THEREFORE, QUESTION OF INVOKING THE R ATIO OF THIS DECISION WOULD NOT ARISE. (6) DCIT VS. RADHE DEVELOPERS INDIA LTD.(GUJ) IN TA X APPEAL NO.171 OF 1999. IN THIS CASE APPLICABILITY OF RATION OF TH E DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN (SUPRA) WAS CONSIDERED. WE HAVE ALREADY HELD ABOVE THAT AS PROV ISIONS OF SECTION 69C ARE NOT APPLICABLE THEREFORE, THE RATIO OF THIS DEC ISION CANNOT BE CONSIDERED. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 25 (7) CIT VS. ASHALAND CORPORATION (1982) 133 ITR 55 (GUJ). IN THIS JUDGMENT HON. GUJARAT HIGH COURT HAS HELD THAT INCO ME ACCRUES ON SALE OF LAND AND ARISES IN THE YEAR IN WHICH THE TITLE I N THE PROPERTY IS TRANSFERRED AND NOT IN THE YEAR IN WHICH ASSESSEE R ECEIVED PART OF CONSIDERATION AND EARNEST MONEY. BUSINESS OF THAT A SSESSEE WAS TO PURCHASE AND SALE OF LAND. THE TRANSACTION OF SALE OF LAND BECOMES COMPLETE ONLY ON POSSESSING OF TITLE WHICH TAKES PL ACE ONLY WHEN REGISTERED DEED IS EXECUTED. SOME RECEIPT OF EARNES T MONEY AND ADVANCE RECEIPT OF MONEY TOWARDS TRANSACTION WOULD NOT BY I TSELF PARTAKE THE CHARACTER OF TAXABLE INCOME AS THE REGISTERED SALE DEED WAS EXECUTED ONLY IN THE SUBSEQUENT YEAR. IN THIS REGARD WE REFER TO FOLLOWING HEAD NOTES FROM THAT JUDGMENT:- THE LAND PURCHASED BY THE ASSESSEE WHICH FORMS PAR T OF ITS STOCK-IN- TRADE, WOULD CONTINUE TO BE SO, UNTIL AND UNLESS IT SELLS IT. THE BUSINESS DEAL IN RESPECT OF THE LAND WOULD BE COMPLETE ONLY WHEN THE ASSESSEE EXECUTED A SALE DEED. SINCE IT WAS ONLY ON COMPLETI ON OF THE SALE TRANSACTION THAT THE ASSESSEE COULD BE SAID TO HAVE EARNED PROFIT OR SUFFERED LOSS, THE EARNEST MONEY AND PART PAYMENT O F PRICE WOULD NOT CONSTITUTE TRADING RECEIPTS FOR THE ASSESSMENT YEAR IN WHICH THEY WERE RECEIVED. UNLESS THE TITLE OF THE ASSESSEE IS EXTIN GUISHED, THE TITLE TO THE PURCHASER CANNOT ARISE. BOTH CANNOT BE THE EXCLUSIV E OWNERS OF THE SAME PROPERTY AT THE SAME TIME. IT WAS EXIOMATIC THAT AN AGREEMENT TO SELL DOES NOT CREATE ANY INTEREST IN FAVOUR OF THE PURCHASER. IT IS ON COMPLETION OF THE TRANSACTION OF PURCHASE AND SALE CULMINATING IN THE EXTINGUISHMENT OF THE TITLE OF THE VENDOR AND SIMULTANEOUS CREATION O F THE TITLE IN THE VENDEE THAT THE ASSESSEE EARNS PROFIT OR SUFFERS LOSS. A T RANSACTION WHICH MAY OR MAY NOT ULTIMATELY RESULT IN A COMPLETED SALE BY EX ECUTING A REGISTERED CONVEYANCE, IS NO TRANSACTION AT ALL FOR THE PURPOS E OF WORKING OUT PROFIT. RECEIPT OF SUM AMOUNT WOULD ASSUME THE CHARACTER OF INCOME OR PROFIT ONLY WHEN THE SALE TRANSACTION IS COMPLETED IN ACCO RDANCE WITH LAW. THE LAND DOES NOT CEASE TO BE THE STOCK-IN-TRADE OF THE ASSESSEE UNLESS AND UNTIL THE SALE IS COMPLETED. THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE BY WAY OF EARNEST MONEY AND PARTY-PAYMENT OF THE PURCHASE PRICE CANNOT BE TREATED AS ITS TRADING RECEIPT KUN JAMAL & SONS. IN RE (1941) 9 ITR 358 (ALL), CHIDAMBARAM CHETTIAR VS. CI T (1936) 4 ITR 309 ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 26 (MAD); TC39R, 210 AND CIT VS. SHAH DOSHI & CO. (198 1) 23CTR (GUJ) 307: (1982) 133 ITR 23 (GUJ): TC 39R, 936 FOLLOWED. AMOUNT RECEIVED BY WAY OF EARNEST MONEY AND ADVANCE AMOUNT TOWARDS TRANSACTION OF SALE OF LAND WOULD NOT BY ITSELF PAR TAKE THE CHARACTER OF TAXABLE INCOME. 17. THERE CANNOT BE TWO OPINIONS ON THE PROPOSITION THAT THE SALE OF IMMOVABLE PROPERTY TO PURCHASER WOULD BE COMPLETE O N ACTUAL CONVEYANCE OF THE TITLE. IN K.C. PAL CHOWDHURY VS. CIT (1962)46 ITR 01(CAL) IT IS HELD EVEN WHERE THERE IS AN AGREEMENT FOR SALE AND DELIVERY OF POSSESSION AND FULL CONSIDERATION WAS PAID BUT S ALE DEED WAS EXECUTED ON LATER DATE THEN TITLE WOULD PASS WHEN SALE DEED WAS EXECUTED. CAPITAL GAINS WOULD ACCRUE AT THAT POINT OF TIME. HOWEVER, AFTER INSERTION OF SECTION 53A IN TRANSFER OF PROPERTY ACT AND CLAUSE (V) IN SECTION 2(47) THE POSITION OF LAW HAS CHANGED AND CAPITAL GAINS W OULD ACCRUE ON PAYMENT OF FULL CONSIDERATION AND HANDING OVER OF T HE POSSESSION. IN MECCANE INDUSTRIES LTD. VS. CIT (2002) 254 ITR 175 (MAD) HON. MADRAS HIGH COURT HELD THAT CAPITAL GAIN WOULD ACCRUE IN T HE YEAR IN WHICH SALE DEED WAS EXECUTED. HON. ANDHRA PRADESH HIGH COURT I N CIT VS. NAWAB MAHMOOD JUNG BAHADUR (1988) 172 ITR 592 HELD THAT C APITAL GAIN WOULD ARISE ON TRANSFER OF ASSET LIABLE TO BE TAXED FOR T HE YEAR IN WHICH TRANSFER TOOK PLACE. HON. GUJARAT HIGH COURT IN CIT VS. MORM ASJI MANCHARJI VAID (2001) 250 ITR 542 (GUJ) HELD THAT TRANSFER OF IMMO VABLE PROPERTY IS EFFECTED ON THE DATE OF EXECUTION OF TRANSFER DEED AND REGISTRATION OF TRANSFER DEED IS EFFECTED FROM THE DATE OF EXECUTIO N. FROM THESE AUTHORITIES IT FOLLOWS THAT THERE SHOULD BE AN IMMO VABLE PROPERTY IN EXISTENCE AND TRANSFER DEED IS EXECUTED WHICH IS LA TER REGISTERED. THUS CAPITAL GAIN WOULD ACCRUE OR ARISE ONLY WHEN TRANSF ER DEED IS EXECUTED. IN THE PRESENT CASE ASSESSEE IS DEALING IN SEVERAL IMM OVABLE PROPERTY I.E. ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 27 FLATS AND SHOPS WHICH HE HAS CONSTRUCTED. A SINGLE FLAT IS A CAPITAL ASSET FOR THE PURCHASER BUT FOR THE ASSESSEE ALL THE FLAT S TOGETHER CONSTITUTE STOCK-IN-TRADE. AS ASSESSEE IS DEALING IN CAPITAL A SSET, AS STOCK-IN-TRADE, THE BASIC PRINCIPLE OF ACCRUAL OF INCOME WILL REMAI N THE SAME I.E. PROFIT ON SALE OF FLAT WILL ACCRUE TO THE ASSESSEE WHEN FLAT IS IN EXISTENCE AND THE SAME IS TRANSFERRED TO THE PURCHASER THROUGH THE TR ANSFER DEED. THE PROFIT WOULD ARISE TO THE ASSESSEE ONLY ON EXECUTION OF TR ANSFER DEED WHICH MAY BE REGISTERED IN THE SAME YEAR OR MAY BE IN THE SUB SEQUENT YEAR. HON. SUPREME COURT HAD OCCASION TO CONSIDER THE CONCEPT OF ACCRUAL OR ARISING OF INCOME IN THE CASE OF E.D. SASSOON & CO.LTD. & O RS. VS. CIT (1954) 26 ITR 27 (SC) WHEREIN IT IS HELD THAT THERE IS NO DIFFICULTY IN UNDERSTANDING WHAT IS RECEIPT. IT CONVEYS A CLEAR A ND DEFINITE MEANING AND THERE CANNOT BE ANY EXPRESSION WHICH MAKES ITS MEAN ING PLAIN THEN THE WORD RECEIVING ITSELF. THE WORDS ACCRUAL/ARISE AR E NOT DEFINED IN THE ACT. ACCRUING IS SYNONYMOUS WITH ARISING IN THE SEN SE OF SPRINGING AS A NATURAL GROWTH OR A RESULT. ACCRUAL WOULD INDICAT E A SENSE OF GROWING UP BY WAY OF ADDITION OR INCREASE OR AS AN ACCESSIO N OR ADDITION WHILE ARISE WOULD MEAN COMING INTO EXISTENCE OR NOTICE OR PRESENTING ITSELF. ACCRUAL CONNOTES AN INTANGIBLE GROWTH WHILE ARISE A TANGIBLE SHAPE SO AS TO BE RECEIVABLE. FROM THESE CONCEPTS IT FOLLOWS THAT ACCRUAL IS ANTERIOR IN POINT OF TIME THAN ARISE. POINT OF TAXABILITY IN THE CONTEXT OF TRANSFER OF AN IMMOVABLE PROPERTY WOULD BE THE MOMENT WHEN TRAN SFER DEED IS EXECUTED AND AT THAT MOMENT PROFIT TO THE ASSESSEE WOULD ACCRUE AND A RIGHT OF THE ASSESSEE TO RECEIVE CONSIDERATION FOR SUCH TRANSFER WOULD ARISE. PRIOR TO THIS, WHEN ASSESSEE HAVING NO RIGHT ACCRUED OR AROSE AS THERE WAS NO TRANSFER OF ANY ASSET WITH THE MEANING OF SECTION 2(47) OF THE ACT. WHATEVER THE ASSESSEE HAD FROM THE PROSPECTIVE BUYER WOULD ONLY BE A LIABILITY AND THE LIABILITY AS SUCH CANNOT BE TRE ATED AS INCOME AS NO SUCH INCOME ACCRUED OR AROSE TO THE ASSESSEE. MERELY REC EIVING A SUM FOR ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 28 FUTURE PURCHASE OF AN IMMOVABLE PROPERTY CANNOT BE A SALE CONSIDERATION EVEN WITHIN THE MEANING OF SECTION 53A OF TRANSFER OF PROPERTY ACT AS PROPERTY BEING NOT IN EXISTENCE. THE POSSESSION TH EREOF CANNOT BE GIVEN TO THE PROSPECTIVE BUYERS AND, THEREFORE, THE SUM R ECEIVED FOR BEING ADJUSTED AGAINST SALE CONSIDERATION WILL CONTINUE T O CARRY THE CHARACTER OF ADVANCE ONLY AND A LIABILITY IN THE BOOKS OF THE AS SESSEE. MERELY BECAUSE SUCH RECEIPT IS NOT DECLARED OR RECORDED IN THE BOO KS OF ACCOUNT WILL NOT CHANGE THE CHARACTER WHICH HAS TO BE DECIDED IN THE LIGHT OF THE PURPOSE FOR WHICH IT IS GIVEN. FURTHER SUCH RECEIPT (ON MON EY IN THE PRESENT CASE) CANNOT BE DISSECTED FROM OTHER PART OF RECEIPT THRO UGH BANKING CHANNELS AS BOTH ARE INTEGRAL PART OF SALE CONSIDERATION. IF THE AMOUNT GIVEN BY CHEQUE CARRIES THE CHARACTER AS AN ADVANCE AGAINST SALE CONSIDERATION THEN ON MONEY IN CASH WILL ALSO CARRY THE SAME CHARACT ER. BOTH TYPES OF RECEIPTS I.E. RECEIPT THROUGH CHEQUES AND RECEIPT T HROUGH CASH AS ON MONEY WILL ARISE AS INCOME TO THE ASSESSEE AS SOON AS TRANSFER OF IMMOVABLE PROPERTY IS EXECUTED AND NOT BEFORE, OR P OSSESSION THEREOF IS HANDED OVER AND FOR THIS IT IS NECESSARY THAT SUCH IMMOVABLE PROPERTY SHOULD BE IN EXISTENCE. THEREFORE, WE ARE OF THE CO NSIDERED THAT ON MONEY RECEIVED BY THE ASSESSEE DID NOT HAVE THE CH ARACTER OF INCOME BUT WAS ONLY AN ADVANCE LIKE THE ONE RECEIVED THROUGH C HEQUE. BOTH WILL BECOME PART OF THE SALE CONSIDERATION TO THE ASSESS EE SIMULTANEOUSLY ON EITHER HANDING OVER THE POSSESSION OF THE FLATS OR ON EXECUTION OF TRANSFER DEED WHICHEVER HAPPENS EARLIER. 18. THUS ON THE BASIS OF ABOVE JUDGMENTS WE HOLD TH AT ADVANCE MONEY RECEIVED EITHER BY WAY OF CHEQUE OR BY WAY OF CASH WILL PARTAKE THE CHARACTER OF TAXABLE INCOME WHEN REGISTERED SALE DE ED OF THE FLATS IS EXECUTED IN SUBSEQUENT YEARS. AS A RESULT, THE SUM OF RS. 10 CRORES WILL ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 29 NOT TAXABLE IN ASST. YEAR 2008-09. THE APPEAL OF AS SESSEE IS ACCORDINGLY ALLOWED. 19. THE SECOND GROUND IS ABOUT SETTING OFF OF INTER EST INCOME OF RS.13,39,593/- AGAINST INTEREST EXPENSES OF RS.56,4 9,225/-. THE AO FOUND THAT INTEREST BEARING FUNDS WERE ENTIRELY NOT UTILI ZED FOR BUSINESS PURPOSES. THEREFORE, BENEFIT OF NETTING CANNOT BE G IVEN. 20. THE LD. CIT(A) CONFIRMED THE ADDITION. 21. WE HAVE HEARD THE PARTIES. WHAT IS REQUIRED TO BE FOUND OUT IS THAT THE INTEREST BEARING FUND WERE GIVEN AS ADVANCES ON WHICH INTEREST INCOME OF RS.13,35,593/- IS EARNED. IF ASSESSEE IS ABLE TO SHOW THE NEXUS THAT INTEREST BEARING FUNDS OR PART THEREOF WAS GIV EN AS ADVANCE ON WHICH ASSESSEE HAS EARNED INTEREST, TO THAT EXTENT NETTIN G CAN BE ALLOWED. IF ASSESSEE IS NOT ABLE TO ESTABLISH SUCH NEXUS OF INT EREST BEARING FUNDS AND ADVANCES ON WHICH ASSESSEE HAS EARNED INTEREST NETT ING WILL NOT BE ALLOWED AND INTEREST INCOME TO THAT EXTENT WOULD BE TAXED SEPARATELY. THIS GROUND OF ASSESSEE IS, THEREFORE, ALLOWED BUT FOR S TATISTICAL PURPOSES. 22. THE THIRD GROUND RELATES TO ADDITION OF RS.2,69 ,690/- AS INTEREST ON ALLEGED INTEREST FREE ADVANCES. THE AO FOUND THAT F OLLOWING AMOUNT IS OUTSTANDING AGAINST VARIOUS PERSONS :- SL.NO. NAME OF THE PERSONS BALANCE OUTSTANDING AS ON 31.03.2008 INTEREST @ 13.5% 1 NEETA KHANDELWAL 6,00,000 50,625 2 VISHWANATH KHANDELWAL 11,41,000 87,191 3 D.R. CORPORATION 40,32,300 68,638 4 ASHWIN KHANDELWAL 2,00,000 12,279 5 SUMAN KHANDELWAL 2,55,000 34,425 ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 30 6 V.N. KHANDELWAL 1,50,000 16532 TOTAL 2,69,690 ACCORDING TO THE AO ASSESSEE EARNED INTEREST ON SUC H INTEREST FREE ADVANCES. SOME OF THEM INCLUDED PARTNERS OF THE FIR M. SINCE THE ASSESSEE HAS PAID INTEREST OF RS.56,49,225/- IT SHOULD HAVE DECLARED INTEREST INCOME ON SUCH INTEREST FREE ADVANCES. HE ACCORDINGLY CALC ULATED PROBABLE INTEREST INCOME ON SUCH ADVANCES AND ADDED IN THE T OTAL INCOME. 23. THE LD. CIT(A) CONFIRMED THE SAME. 24. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THIS ISSUE IS ALSO R EQUIRED TO BE EXAMINED AFRESH FROM THE POINT OF VIEW OF NEXUS. AO HAS TO S HOW THAT INTEREST BEARING FUNDS WERE ADVANCED AS INTEREST FREE TO THE SE PARTNERS. IF IT IS SO THEN RATHER TAXING INTEREST INCOME, PART OF INTERES T EXPENDITURE CAN BE DISALLOWED. BUT WHERE ASSESSEE HAS SUFFICIENT PERSO NAL CAPITAL OR INTEREST FREE FUNDS THEN NO SUCH ADDITION CAN BE MADE. WITH THESE OBSERVATIONS WE RESTORE THIS ISSUE ALSO TO THE FILE OF AO. AS A RES ULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR S TATISTICAL PURPOSES. 25. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 8/4/11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 8/4/11. MAHATA/- ITA NO.2735/AHD/2010 ASST. YEAR 2008-09 31 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 25/3/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 4/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..