P.Manivel, Trichy V. ITO, Trichy

ITA 456/CHNY/2006

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7976 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-10-2010
• Assessment Year: 1995-1996
• Appeal Filed On: 23-02-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SRIDHAR
• Keywords: Unexplained investment; Business income
• Section: 143(3); 133A; 147; 131; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH D : CHENNAI [BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER] I.T.A.NOS.1093 TO 1095/MDS/2005 ASSESSMENT YEARS : 1995-96,1996-97 & 1997-98 THE ITO WARD III(1) TRICHY VS SHRI P. MANIVEL PROP. MOTHERLAND REAL ESTATE 64-E, MAIN ROAD KALLUKUZHI, TRICHY (APPELLANT) (RESPONDENT) I.T.A.NOS.455 TO 458/MDS/2006 ASSESSMENT YEARS : 1994-95, 1995-96,1996-97 & 19 97-98 SHRI P. MANIVEL PROP. MOTHERLAND REAL ESTATE 64-E, MAIN ROAD KALLUKUZHI, TRICHY VS THE ITO WARD III(1) TRICHY (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI K.E.B RENGARAJAN, JR. STANDING COUNSEL ASSESSEE BY : SHRI S. SRIDHAR O R D E R PER BENCH: THIS IS A BUNCH OF SEVEN APPEALS, PERT AINING TO ASSESSMENT YEARS 1994-95 TO 1997-98. THREE APPEALS HAVE BEEN FILED BY THE REVENUE AND FOUR APPEALS BY THE ASSESSEE. AS THE FACTS OF ALL THESE APPEALS ARE COMMON AND ISSUES ARE CO-RELATED, FOR T HE SAKE OF ITA 1093 TO 1095/05 455 TO 458/06 :- 2 -: CONVENIENCE AND BREVITY, WE PROCEED TO DECIDE THEM BY THIS COMMON ORDER. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS IN THE NAME AND STYLE OF M/S MOTHERLAND REAL ESTATE, WHICH IS HIS PROPRIETARY C ONCERN. A SURVEY U/S 133A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFER RED TO AS 'THE ACT' FOR SHORT) WAS CONDUCTED IN HIS BUSINESS PREMISES O N 19.3.1997. DURING THIS SURVEY, A STATEMENT ON OATH WAS RECORDE D FROM THE ASSESSEE, IN WHICH HE STATED THAT COST OF CONSTRUCT ION IN THE HOUSE AT PLOT NO.4A, KRISHNAMOORTHY NAGAR, SIMCO METER ROAD, TIRUCHIRAPALLI, WAS ` 20,07,000/- AND AT THAT TIME, HE COULD EXPLAIN ONL Y SOURCE TO THE EXTENT OF ` 9,65,000/-. HE ALSO STATED THAT WHILE FILING THE RETURN OF INCOME HE ADMITTED ` 12 LAKHS AS UNEXPLAINED INVESTMENT BUT IN THE RETURNS EVENTUALLY FILED ON 14.7.1997 FOR ASSESSMEN T YEARS 1994-95 TO 1997-98, HE INSTEAD DECLARED LOSS OF ` 2,85,420/-, ` 7,79,840/-, ` 2,21,880/- AND ` 1,79,500/- RESPECTIVELY. ON THE BASIS OF THE STATEMENT RECORDED DURING SURVEY, THE ASSESSING OFF ICER CHOSE TO PROCEED U/S 147 R.W.S 148 AND HENCE, ISSUES NOTICES U/S 148 FOR ALL THE FOUR ASSESSMENT YEARS ON 18.11.1998. THE ASSESSEE REQUESTED THE RETURNS ALREADY FILED ARE TO BE TREATED AS RETURNS FILED IN RESPONSE TO THESE NOTICES. IN THE MEANWHILE, THE ASSESSING OFF ICER REFERRED THE ITA 1093 TO 1095/05 455 TO 458/06 :- 3 -: MATTER OF VALUATION TO THE VALUATION CELL TO ESTIMA TE THE COST OF CONSTRUCTION OF THE RESIDENTIAL HOUSE IN QUESTION. THE DVO HAS ESTIMATED THE COST OF CONSTRUCTION AT ` 22,16,000/-. CONSEQUENTLY, THE ASSESSEE FILED CASH FLOW STATEMENTS, ESTIMATED PROF IT & LOSS ACCOUNT, DETAILS OF PURCHASE AND SALES OF PLOTS UNDER VARIOU S SCHEMES, COLLECTIONS MADE FROM THE SUBSCRIBERS UNDER THESE S CHEMES ETC AND ARGUED THAT THE COST OF CONSTRUCTION HAD BEEN MET BY THE FINANCES RECEIVED FROM THE SUBSCRIBERS WHICH WERE IN ANY CAS E NOT LIABLE TO BE RETURNED TO THEM SINCE THE SAID ADVANCES HAD BEEN R ECEIVED AS CONSIDERATION FOR SALE OF PLOTS. BUT THE ASSESSING OFFICER WAS NOT CONVINCED AND HE SUMMONED THE ASSESSEE U/S 131 OF THE ACT AND AGAIN RECORDED HIS STATEMENT ON 16.3.2000 AND 17.3 .2000. IN THIS STATEMENT, ON THE CONTRARY, THE ASSESSEE EXPLAINED THE NATURE OF HIS BUSINESS STATING THAT HE WAS MAINLY FLOATING SCHEME S CONSISTING OF 100 MEMEBRS AND HAVING A DURATION OF 26 MONTHS. AS PER THE SCHEMES, A MEMBER HAD TO SUBSCRIBE ` 600/- IN THE FIRST INSTALMENT AND ` 250/- EACH IN THE REMAINING INSTALMENTS. DRAWS WOULD BE CONDUCTED EVERY MONTH AND THE SUCCESSFUL BIDDER WOULD BE ALLOTTED A PLOT WHEREUPON HE WOULD NOT HAVE TO MAKE ANY FURTHER PAYMENTS. THE INSTALMENTS HAD TO BE COLLECTED BY THE ASSESSEES EMPLOYEES AND THE SE WOULD BE RECORDED IN THE RECEIPT BOOKS. THE EXPENSES INCURR ED BY THE ITA 1093 TO 1095/05 455 TO 458/06 :- 4 -: EMPLOYEES WOULD BE RECORDED IN A SMALL CHITTA BOOK. FROM THE AMOUNTS THUS COLLECTED HE WOULD PURCHASE LANDS, DEV ELOP AND CONVERT THE SAME INTO PLOTS, AND SELL THE PLOTS EITHER TO T HE SUCCESSFUL BIDDERS OR TO THE SUBSCRIBERS WHO HAD ALREADY COMPLETED THE IR SUBSCRIPTIONS. IT WAS CLARIFIED THAT HE DID NOT MAINTAIN ACCOUNT B OOKS ON DAY-TO-DAY BASIS AND THEREFORE, THE CASH AVAILABLE ON ANY G IVEN DAY WAS NOT ASCERTAINABLE. BUT THE ASSESSING OFFICER WAS NOT A GREEABLE. HE RE- WORKED THE CLOSING STOCK OF PLOTS AND THEIR VALUE A ND FOUND THAT THE ASSESSEE HAS UNDERSTATED THE VALUE OF CLOSING STOCK FOR ASSESSMENT YEARS UNDER CONSIDERATION TO THE EXTENT OF ` 34,156/- ` 3,32,132/- AND ` 5,82,204/- RESPECTIVELY. IN THE ABSENCE OF EVIDEN CE, HE IGNORED ALTOGETHER EXPENSES CLAIMED BY THE ASSESSEE. THE E XPENDITURE STATED TO BE IN THE NATURE OF COMMISSION PAID TO BROKERS W ERE ALTOGETHER DENIED TO THE TUNE OF 90%. THE OTHER EXPENSES WERE ALSO CONSIDERED TO BE ON HIGHER SIDE. HE ESTIMATED THE EXCESS EXPE NDITURE OUT OF THE OTHER EXPENSES AT 20%. IN THIS MANNER, HE HAS COMP UTED THE ASSESSEES INCOME/LOSS FOR THESE FOUR ASSESSMENT YE ARS ON SOLE REFERENCE TO THE PROFIT & LOSS ACCOUNT AT (-) ` 15,51,366/-, (-) ` 2,37,022/-, ` 5,10,371/- AND ` 11,05,102/- RESPECTIVELY. FROM THE BALANCE SHEET HE FOUND THAT THE ASSESSEE HAS COLLEC TED SUBSTANTIAL AMOUNT FROM SUBSCRIPTION MONEY YEAR AFTER YEAR WHIC H AGGREGATED FOR ITA 1093 TO 1095/05 455 TO 458/06 :- 5 -: FOUR YEARS TO ` 1,04,59,250/-. OUT OF THESE, ASSESSEE HAD SQUARED UP ONLY ` 34,02,590/- BEING THE VALUE OF THE PLOTS SOLD TILL 31.3.1997. THE BALANCE OF ` 65,21,050/- HAD BEEN SHOWN AS LIABILITIES TO THE CUSTOMERS. HE HAS MATCHED THESE LIABILITIES, MANY OTHER THINGS, BY LOSS OF ` 15,47,283/- AND WITHDRAWALS OF ` 24,5727/-. BUT THE ASSESSING OFFICER WAS NOT AGREEABLE WITH OTHER REAS ONS BY MENTIONING THAT NO PRUDENT BUSINESSMAN WOULD WITHDRAW THE MONE Y BELONGING TO OTHERS FOR ACQUIRING A PROPERTY FOR SELLING THE PR OPERTY AGAIN TO MAKE REPAYMENTS TO THE CUSTOMERS BY FLOATING SUCH SCHEME S. ON THE BASIS OF THE ABOVE CUMULATIVE REASONS, HE REJECTED THE EN TIRE CLAIM OF THE ASSESSEE. THUS, THE ASSESSING OFFICER TOOK THE ENT IRE INVESTMENT OF ` 22.16 LAKHS (AS ESTIMATED BY THE DVO) MADE BY THE A SSESSEE IN THE CONSTRUCTION AS WELL AS SAVINGS TO THE EXTENT OF ` 2 LAKHS AS THE ASSESSEES BUSINESS INCOME. WHILE THE SAVINGS WERE SPREAD OVER FOUR YEARS I.E FROM PREVIOUS YEARS RELEVANT TO ASSESSMEN T YEARS 1994-95 TO 1997-98, UNEXPLAINED INVESTMENTS IN THE HOUSE WAS S PREAD OVER THREE YEARS I.E PREVIOUS YEARS RELEVANT TO ASSESSMENT YEA RS 1995-96 TO 1997-98 BECAUSE THE CONSTRUCTION HAD BEEN MADE DURI NG THESE THREE YEARS ONLY. ON THE BASIS OF SUCH APPORTIONMENT, TH E ASSESSING OFFICER HAS COMPUTED THE ASSESSEES INCOME FOR THE FOUR ASS ESSMENT YEARS FROM THE INVESTMENT ANGLE AT ` 50,000/- FOR ASSESSMENT YEAR 1994-95 ITA 1093 TO 1095/05 455 TO 458/06 :- 6 -: AND ` 7,89,000/- EACH FOR THE ASSESSMENT YEARS 1995-96 T O 1997-98. AFTER COMPUTING THE ASSESSEES INCOME FROM BOTH I.E FROM BUSINESS ANGLE AND INVESTMENT ANGLE, THE ASSESSING OFFICER H AS ADOPTED THE HIGHER INCOME I.E BY APPLYING INVESTMENT METHOD FOR ASSESSMENT YEARS 1995-96 TO 1996-97 AND INCOME METHOD FOR ASSESSMENT YEAR 1997-98. THE FOUR ASSESSMENT S WERE THUS COMPLETED ACCORDING LY. AGAINST THESE ADDITIONS AND OBSERVATIONS OF THE ASSESSING O FFICER, THE ASSESSEE PREFERRED FIRST APPEAL FOR ALL THESE YEARS AND VEHE MENTLY DISPUTED THE VALIDITY OF THE RE-ASSESSMENT PROCEDURAL IRREGULARI TIES BY SENDING NOTICE U/S 143(2) OF THE ACT AND ALSO THE OTHER ACTION OF THE ASSESSING OFFICER BY ADOPTING BOTH INCOME METHOD AND EXPENDITURE(INVE STMENT) METHOD BOTH WHICHEVER SUITED TO HIM. AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE AND TAKING THE OBJECTIONS/COMMENTS OF THE ASSESSING OFFICER, THE LD. CIT(A) HAS NOT FOUND FORCE IN THE LEGAL ARG UMENTS RAISED ON BEHALF OF THE ASSESSEE BUT HE HAS REDUCED/RESTRICTE D THE ADDITION ON MERITS TO ` 12 LAKHS TOWARDS UNEXPLAINED INVESTMENT BASED ON T HE STATEMENT OF THE ASSESSEE RECORDED DURING SURVEY A ND HAS APPORTIONED THE SAME INTO THREE ASSESSMENT YEARS 19 95-96, 1996-97 AND 1997-98 EQUALLY. HE HAS DIRECTED TO TELESCOPE THE BUSINESS INCOME AGAINST UNEXPLAINED INVESTMENT BUT IN ASSESS MENT YEAR 1994- 95, SINCE NO CONSTRUCTION HAD BEEN TAKEN PLACE DURI NG THE PREVIOUS ITA 1093 TO 1095/05 455 TO 458/06 :- 7 -: YEAR RELEVANT THERETO, HE HAS TAKEN NIL INCOME. BOT H THE PARTIES ARE AGGRIEVED. 3. THE ASSESSEE HAS FILED APPEALS FOR ASSESSMENT YEARS 1994-95 TO 1997-98 WHEREAS THE REVENUE HAS FILED APPEALS FOR A SSESSMENT YEAR 1995-96 TO 1997-98. THE APPEALS OF THE ASSESSEE WE RE TIME BARRED FOR WHICH CONDONATION PETITIONS HAVE BEEN FILED. I N VIEW OF THE REASONS MENTIONED IN THE AFFIDAVITS AND PETITIONS F ILED FOR EACH YEARS AND IN VIEW OF THE SETTLED VERDICT OF THE HON'BLE SUPREME COURT WHEREIN IT HAS BEEN HELD THAT SUBSTANTIAL JUSTICE S HOULD PREVAIL OVER PROCEDURAL IRREGULARITIES, WE CONDONE THE DELAY IN QUESTION AND ADMIT THE APPEALS. 4. ONE COMMON GROUND FOR THESE YEARS RAISED BY THE AS SESSEE IS THAT WITHOUT ISSUING NOTICE U/S 143(2), THE ASSESSI NG OFFICER HAS FRAMED ASSESSMENT U/S 143(3) BY ISSUING NOTICE U/ S 142(1). BOTH THE SIDES WERE HEAD ON THIS COMMON ISSUE. IT WAS F OUND FOR A FACT THAT NO SUCH NOTICES WERE ISSUED IN ALL THESE YEARS U/S 143(2) WITHIN THE PRESCRIBED PERIOD OF 12 MONTHS FROM THE END OF THE MONTH IN WHICH THE RETURNS OF INCOME WERE FILE IN RESPONSE T O NOTICES ISSUES U/S 142(1). THE ASSESSEE HAD ALREADY FILED RETURNS FOR THESE YEARS ON 14.10.1997. SUBSEQUENTLY, NOTICES U/S 148 WERE ISS UED. THE FINDINGS ITA 1093 TO 1095/05 455 TO 458/06 :- 8 -: OF THE LD. CIT(A) THAT NON-ISSUANCE OF NOTICE U/S 1 43(2) IS A MERE AND SHEET PROCEDURAL REQUIREMENT AND NON-CONFORMATION W ITH THE SAME WOULD NOT AFFECT THE ASSESSMENT AT ALL IS NOT CORR ECT. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS TCP LTD, 32 3 ITR 346, HAS HELD THAT ISSUANCE OF NOTICE U/S 143(2) IS A MUST F OR MAKING A VALID ASSESSMENT ORDER. NON-ISSUANCE OF SUCH A NOTICE RE NDERS THE ASSESSMENT SO MADE BAD IN LAW. CONSEQUENTLY, WE A LLOW THIS LEGAL ISSUE IN ALL THESE YEARS AND HOLD THAT THE ASSESSME NT ORDERS ARE BAD IN LAW AND CANNOT BE SUSTAINED IN THE EYES OF LAW. 5. THE OTHER LEGAL ISSUE RAISED IN ALL THESE YEARS IS THAT THE ASSESSMENTS FOR ASSESSMENT YEARS 1994-95 AND 1995-9 6 WAS BARRED BY LIMITATION INASMUCH AS THE FIRST NOTICE U/S 148 WAS ISSUED ON 31.3.1997. THE ASSESSMENT PROCEEDINGS FOR ALL THE FOUR ASSESSMENT YEARS IN ANY CASE GOT VITIATED ON ACCOUNT OF THE F AILURE OF THE ASSESSING OFFICER TO ISSUE NOTICE U/S 143(2) WITHIN THE STATUTORY PERIOD OF TWELVE MONTHS IN WHICH RETURNS OF INCOME HAD BEE N FILED IN RESPONSE TO NOTICES ISSUES U/S 148. WE DO NOT FIND MUCH FORCE IN THE LEGAL ISSUE REGARDING LIMITATION FOR THE ASSESSMENT YEARS 1994-95 AND 1995-96 BUT THE OTHER ISSUE OF NON-ISSUANCE OF NOTI CE U/S 143(2) HAS ALREADY BEEN DISCUSSED AND DECIDED ABOVE. THIS IRR EGULARITY ITA 1093 TO 1095/05 455 TO 458/06 :- 9 -: COMMITTED BY THE DEPARTMENT CANNOT BE CURED U/S 292 B(B) BECAUSE IT HAS BEEN MADE OPERATIVE FROM 1.4.2008 ONLY. 6. NOW, COMING TO THE MERITS OF THE CASE, IT WAS ARGUE D BY THE LD.AR THAT THE ASSESSEE HAS MADE INVESTMENT IN THE CONSTRUCTION OF HIS RESIDENTIAL HOUSE. IT IS UNDISPUTED FACT THAT THE ASSESSING OFFICER HAS DECIDED THIS ISSUE BOTH FRO INCOME ANGLE AS WELL AS INVESTMENT ANGLE. BUT THE FACT REMAINS THAT THE MAIN ISSUE IS REGARDI NG THE INVESTMENT MADE IN THIS BUILDING. DURING SURVEY CONDUCTED U/ S 133A, AS ALREADY BEEN STATED IN EARLIER PART OF THIS ORDER, THE ASSE SSEE HAS ADMITTED HAVING MADE INVESTMENT IN THE RESIDENTIAL HOUSE. T HERE IS NO DOUBT THAT DURING SURVEY THE ASSESSEE HAS STATED THAT ` 12 LAKHS WERE SPENT AS UNEXPLAINED DURING ASSESSMENT YEARS 1995-96 TO 1 997-98 BUT DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS EXP LAINED THE SOURCE OF ENTIRE INVESTMENT MADE IN THIS HOUSE BY FILING T HE FOLLOWING DOCUMENTS: (I) DETAILS REGARDING THE VERY SCHEMES AS HAD BEEN FURNISHED AT THE ASSESSMENT STAGE. (II) COPIES OF A FEW RECEIPTS ISSUED BY HIM TO THE SUBSCRIBERS (III) COPIES OF A FEW FOLIOS FROM THE MEMBERS REGI STER CONTAINING DETAILS REGARDING PRIZE WINNINGS. (IV) COPIES OF THE CONFIRMATIONS FROM AGENTS/BROKER S AS HAD BEEN FILED BEFORE THE ASSESSING OFFICER. ITA 1093 TO 1095/05 455 TO 458/06 :- 10 - : (V) A STATUS REPORT IN RESPECT OF REGISTRATIONS DON E AS WELL AS PENDING AS ON 31.3.1997. 7. THE ASSESSING OFFICER HAS ALSO NOT FOUND ANY DEFECT OR DIFFICULTY IN ACCEPTING THE CORRECTNESS OF THESE DOCUMENTS BUT WHAT HAS BEEN DOUBTED OR SUSPECTED BY HIM IS THAT NO PRUDENT BUSI NESSMAN OR A PERSON WOULD SPENT SUCH ADVANCES ETC TAKEN BY HIM I N THE CONSTRUCTION OF A HOUSE. IT WAS ARGUED BY THE LD.A R THAT FIRST OF ALL THE STATEMENT RECORDED DURING THE SURVEY HAS NO SANCTIT Y AND NO ADDITION CAN BE BASED ONLY ON THAT BASIS AS HAS BEEN HELD BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS S. KHADER K HAN SON, 300 ITR 157. IN THAT CASE, IT HAS BEEN HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT IN VIEW OF THE S COPE AND AMBIT OF THE MATERIALS COLLECTED DURING THE COURSE OF SURVEY ACTION UNDER SECTION 133A SHALL NOT HAVE ANY EVIDEN TIARY VALUE. IT COULD NOT BE SAID SOLELY ON THE BASIS OF THE STATEMENT GIVEN BY ONE OF THE PARTNERS OF HE ASSESS EE-FIRM THAT THE DISCLOSED INCOME WAS ASSESSABLE AS LAWFUL INCOME OF THE ASSESSEE. 8. IT IS A FACT THAT THERE IS NO DISPUTE REGARDING THE COST OF CONSTRUCTION INCURRED BY THE ASSESSEE BUT THE DISPU TES HINGES AROUND ONLY THE SOURCE OF THE INVESTMENT. IT IS ALSO AN UNDISPUTED FACT THAT THE ADDITIONS ARE BASED ONLY ON THE STATEMENT RECOR DED DURING SURVEY AND THERE IS NO OTHER CORROBORATIVE EVIDENCE AVAILA BLE ON RECORD WITH THE DEPARTMENT. THE ASSESSEE HAS ALSO CLAIMED AND EXPLAINED THAT SOME PART OF THE COST OF CONSTRUCTION OF THE HOUSE HAD BEEN PARTLY MET ITA 1093 TO 1095/05 455 TO 458/06 :- 11 - : OUT OF THE FAMILY SAVINGS AMOUNTING TO ` 3 LAKHS. AS THE ASSESSEE AND HIS WIFE COULD GET ` 66,000/- PER ANNUM. THE LD. CIT(A) HAS ACCEPTED ` 2 LAKHS OUT OF ` 3 LAKHS AS NOT ACCEPTED THE REMAINING ` 1 LAKH. THE ASSESSEE HAS TRIED TO EXPLAIN AS TO HOW THE ADVANCE WAS RECEIVED AND HOW THE REMAINING AMOUNT WAS PAID ON THE PURCHASE O F LAND AND SALE OF PLOTS. THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) HAS SUBSTITUTED THEIR OWN CALCULATIONS IN PLACE OF ASSE SSEES CLAIM WHICH IS NOT PERMISSIBLE IN LAW. THE AUTHORITIES CANNOT STE P INTO THE FOOT OF THE ASSESSEE TO TELL AS TO HOW AND IN WHAT MANNER THE B USINESS IS TO BE CARRIED OUT OR THE INVESTMENT HAS TO BE MADE. WE A RE IN AGREEMENT WITH THE LD.AR THAT ANY LOSS INCURRED TO THE ASSESS EE HAS TO BE CONSIDERED AS BOTH INCOME AND LOSS AS RECOGNIZED B Y THE INCOME-TAX ACT. THE FOLLOWING SUBMISSIONS HAVE A BEARING ON T HE ISSUE WHICH IN OUR OPINION, DEFINITELY SUPPORT THE CASE OF THE ASS ESSEE. THESE SUBMISSIONS ARE AS UNDER: (I) THE ASSESSING OFFICER GROSSLY ERRED IN ASSUMING THA T THE SALE AMOUNTS SHOWN IN THE PROFIT AND LOSS ACCOUNTS RELATED TO 539 PLOTS ONLY. THE ASSESSING OFFICER MA DE THIS ERRONEOUS ASSUMPTION BECAUSE HE TOOK INTO ACCO UNT ONLY 9 COMPLETED SCHEMES WHEREAS THE APPELLANT HAD IN FACT FLOATED 33 SCHEMES OF WHICH 9 HAD BEEN COMPLET ED AND THE BALANCE HAD REMAINED INCOMPLETE. IT OUGHT T O HAVE BEEN APPRECIATED BY THE ASSESSING OFFICER THAT THE SALES SHOWN IN THE PROFIT AND LOSS ACCOUNTS NOT ONL Y INCLUDED THE SALES ACTUALLY REGISTERED BUT ALSO INC LUDED (I) PLOTS ALLOTTED TO THE LUCKY WINNERS OF THE DRAWS, A ND, (II) PLOTS IN RESPECT OR WHICH SUBSCRIPTIONS IN INSTALME NTS HAD BEEN RECEIVED IN FULL. ITA 1093 TO 1095/05 455 TO 458/06 :- 12 - : ( II) AS THE ASSESSING OFFICER DID NOT TAKE THE NUMBE R OF PLOTS SOLD CORRECTLY, HE ALSO ERRED IN TAKING MORE NUMBER OF PLOTS IN CLOSING STOCK THAN ACTUALLY WAS THE CASE. THE NUMBER OF PLOTS SOLD DURING THE RELEVANT YEARS AND FORMING PART OF THE CLOSING STOCK AT THE RESPECTIVE YEAR- ENDS WERE AS UNDER : A.Y 1994-95 A.Y 1995-96 A.Y 1996- 97 A.Y 1997-98 OPG.STOCK - 92 58 344 PURCHASES 112 62 608 450 TOTAL 112 154 666 794 LESS: SALES 20 96 322 419 CLOSING STOCK 92 58 344 375 CLG.STOCK AS PER ITO 92 68 454 693 (III) THE ASSESSING OFFICER NOT ONLY ERRED IN TAKI NG LESS NUMBER OF PLOTS AS SOLD AND MORE NUMBER OF PLOTS AS PART OF CLOSING STOCK, HE ALSO ERRED IN RECOMPUTING THE CLOSING STOCK VALUE OF PLOTS BY TAKING THE AVERAGE COST OF THE PURCHASES MADE DURING THE FOUR YEARS. SUCH A METHOD WAS PATENTLY ERRONEOUS BECAUSE IT AMOUNTED TO VALUI NG THE PLOTS PURCHASED IN A PRECEDING YEAR AT RATES PREVAILING IN LATER YEARS. IV) THE ASSESSING OFFICER GROSSLY ERRED IN DISALLO WING 90% OF THE CLAIMS TOWARDS COMMISSIONS AND 20% OF THE CLAIM S TOWARDS THE OTHER EXPENSES IN TOTAL DISREGARD OF TH E CHITTA BOOKS WHICH CONSTITUTED AMPLE EVIDENCE OF THE EXPEN SES WHICH HAD BEEN ACTUALLY INCURRED. IT WAS ALSO GROSS LY ERRONEOUS ON THE PART OF THE ASSESSING OFFICER TO D ISREGARD THE CLAIM TOWARDS COMMISSION WITHOUT MAKING ANY ENQUIRIES OR VERIFICATIONS NOTWITHSTANDING THAT A L IST OF THE COMMISSION AGENTS WITH THEIR ADDRESSES HAD BEEN FURNISHED. IT OUGHT TO HAVE BEEN APPRECIATED BY THE ASSESSING OFFICER THAT IT WAS NOT POSSIBLE FOR A SI NGLE PERSON TO CANVASS FOR A LARGE NUMBER OF SUBSCRIBERS WHICH WAS AROUND 3300. V) THE VARIOUS OBSERVATIONS MADE IN THE ASSESSMENT ORDERS WOULD SHOW THAT THE ASSESSING OFFICER DISBELIEVED T HE RETURNED LOSSES MERELY BECAUSE THE SAME HAPPENED TO BE ITA 1093 TO 1095/05 455 TO 458/06 :- 13 - : LOSSES. IT OUGHT TO HAVE BEEN APPRECIATED BY THE AS SESSING OFFICER THAT TILE VERY FACT THAT THE INCOME-TAX ACT RECOGNIZES LOSSES WOULD IN ITSELF INDICATE THAT INCURRING OF L OSSES IS AS MUCH REAL AS EARNING OF INCOME IS. VI) WHEN THE APPELLANT HAD PRODUCED MEMBERS' REGIST ERS, RECEIPT BOOKS AND CHITTA BOOKS, IT WAS NOT AT ALL P ROPER FOR THE ASSESSING OFFICER TO IGNORE SUCH EVIDENCES AND ASSUME THAT THE APPELLANT COULD HAVE PRUDENTLY EARN ED HIGHER INCOME THAN HAD BEEN SHOWN BY HIM ON THE BAS IS OF THE ABOVE REGISTERS AND BOOKS. VII) THE ASSESSING OFFICER GROSSLY ERRED IN MAKING ANY ADDITION TOWARDS INVESTMENT IN CONSTRUCTION WITHOUT REJECTIN G THE BALANCE SHEETS WHICH HAD BEEN DULY PREPARED AND TIL ED AND ALSO AFTER HAVING ACCEPTED THAT HE (THE APPELLA NT) HAD GOT COLLECTIONS OF RS.1,04,59,250 AND SALES OF RS.39,38,200. IT WAS THUS EVIDENT FROM THE ASSESSIN G OFFICER'S OWN OBSERVATIONS THAT THE APPELLANT HAD S UFFICIENT CASH IN HIS HANDS FOR CONSTRUCTING HIS HOUSE. VIII) IT WAS GROSSLY ERRONEOUS ON THE PART OF THE ASSESSING OFFICER TO ASSUME THAT THE APPELLANT WAS UNDER OBLI GATION TO MAKE REPAYMENTS OF THE SUBSCRIPTIONS/ADVANCE MON IES TO THE CUSTOMERS AND FURTHER TO ASSUME THAT BEING U NDER SUCH AN OBLIGATION, THE APPELLANT COULD NOT HAVE US ED THE ADVANCE MONIES FOR THE CONSTRUCTION OF HIS HOUSE. I N FACT, THE APPELLANT HAD NOT MADE ANY REPAYABLE BORROWALS AND, ON THE CONTRARY, THE ADVANCES RECEIVED FROM THE CUS TOMERS MERELY REPRESENTED THE PAYMENTS MADE INSTALMENTS TOWARDS THE COST OF THE SPECIFIED PLOTS ALLOTTED TO THEM. IX) THE ASSESSING OFFICER WAS NOT AT ALL JUSTIFIED IN TREATING THE COST OR CONSTRUCTION AS UNEXPLAINED INVESTMENT AND, IN TURN, AS THE APPELLANT'S INCOME. THE APPELLANT HAD SHOWN A SUM OF RS. 24,57,487 AS DRAWN FROM BUSINESS, 1.E., OUT OF THE INSTALMENTS RECEIVED FROM THE CUSTOMERS. THE AP PELLANT BAD ALSO DECLARED A SUM OF RS. 2,16,000 UNDER THE VOLUNTARY DISCLOSURE OF INCOME SCHEME, 1997. THE AGGREGATE OF THE ABOVE TWO AMOUNTING TO RS. 26,73,4 87 WAS MORE THAT THE COST OR CONSTRUCTION (EVEN AS PER THE VALUATION CELL) AND THE FAMILY EXPENSES FOR FOUR YE ARS (AS PER THE ASSESSMENT ORDERS). IN THE CIRCUMSTANCES, T HERE WAS NO BASIS TO HOLD THAT INVESTMENT IN THE CONSTRU CTION OF THE HOUSE HAD EMANATED FROM ANY UNEXPLAINABLE SOURC ES. X) WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSING OF FICER COULD ITA 1093 TO 1095/05 455 TO 458/06 :- 14 - : AT THE MOST HAVE DEEMED THE UNEXPLAINED INVESTMENT WORKED OUT BY HIM AS THE APPELLANT'S INCOME OF THE YEAR OF CONSTRUCTION. HE WAS NOT JUSTIFIED IN SPREADING THE UNEXPLAINED INVESTMENT OVER A PERIOD OF THREE YEARS EQUALLY. XI) INASMUCH AS THE APPELLANT HAD AMPLY CLARIFIED T HE SOURCES FROM OUT OF WHICH THE COST OF CONSTRUCTION AS WELL US THE 1~LINILY EXPENSES HAD BEEN MET, THERE WAS NO BASIS FOR MAKING ANY ADDITION WITH REFERENCE TO SUCH COST/EXPENSES. IF AT ALL ANY PART OF SUCH COST/EXPENSES STILL HAD TO BE DEEMED AS INCOME, SUCH INCOME OUGHT TO HAVE BEEN SE T OFF AGAINST THE BUSINESS LOSSES WHICH HAD BEEN SHOW N IN THE RETURNS. XII) THE ASSESSMENTS FOR THE ASSESSMENT YEARS 1994- 95 AND 1995-96 WERE BARRED BY LIMITATION. NOTICES U/S 148 FOR THESE TWO ASSESSMENT YEARS HAD BEEN ISSUED ON 31-3- 1997. IN THIS BACKGROUND, THE FURTHER NOTICES U/S L 4G ISSUED BY THE ASSESSING OFFICER FOR THE VERY SAME ASSESSME NT YEARS WERE INVALID. FOR THE SAME REASON, THE ASSESS MENTS MADE IN PURSUANCE OR SUCH NOTICES WERE ALSO INVALID . XIII) RAISING AN ADDITIONAL GROUND THE APPELLANT ALSO ST ATED THAT THE ASSESSING OFFICER COMMITTED A PROCEDURAL ERROR IN COMPLETING THE ASSESSMENTS FOR THESE FOUR ASSESSMEN T YEARS U/S.143(3) OF THE ACT WITHOUT ISSUING ANY NOT ICES U/S 143(2) WHICH WERE MANDATORY. THE ASSESSING OFFICER HAD MERELY ISSUED ONE LETTER ON 20.9.1999 CALLING FOR C ERTAIN PARTICULARS. HE HAD ENCLOSED TO THE SAID LETTER A NOTICE U/S 142(1). NO NOTICE U/S 143(2) HAD BEEN ISSUED. TH E FAILURE TO ISSUE ANY NOTICE U/S 143(2) VITIATED THE RE-ASSE SSMENT PROCEEDINGS WHICH DESERVED TO BE CANCELLED FOR THIS REASON ALONE. 9. KEEPING IN MIND THE ABOVE SUBMISSIONS OF THE ASSES SEE AND OUR OBSERVATIONS, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAD ENOUGH SOURCE TO INVEST IN THE RESIDENTIAL BUILDING AND THE SAME ALSO STAND EXPLAINED ON RECORD. WE, THEREFORE, ALLOW AL L THE FOUR APPEALS OF THE ASSESSEE AND AS A CONSEQUENCE, CANNOT ALLOW THE APPEALS OF THE REVENUE FOR THREE YEARS. ITA 1093 TO 1095/05 455 TO 458/06 :- 15 - : 10. IN THE RESULT, ALL THE FOUR APPEALS FILED BY THE ASSESSEE ARE ALLOWED WHEREAS ALL THE THREE APPEALS FILED BY THE REVENUE ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 22.10.2010. SD/- SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 22 ND OCTOBER, 10 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR