M/s. Krishna Developers, JAMNAGAR V. The Dy. Commr. of Income Tax, Cen. Cir.2, RAJKOT-GUJARAT

ITA 458/RJT/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9513 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 07-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B B RAJENDRA PRASAD
• Assessee Lawyers: MJ RANPURA
• Keywords: Rejection of books of accounts; Business income; Income from undisclosed sources; Search and seizure; Document seized; Proportionate interest; Commercial expediency; Documents seized
• Section: 143(3); 14A; 205; 145; 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT (CONDUCTED THROUGH E - COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER AND SHRI WASEEM AHMED , ACCOUNTANT MEMBER ./ ITA NOS.458 - 459/ RJT/2015 / ASSTT. YEAR S : 2011 - 2012 & 2012 - 2013 M/S. KRISHNA DEVELOPERS , 402, 4 TH FLOOR, OSCAR APARTMENT , LIMDA LANE , JAMNAGAR . PAN: AAJFK0115D VS . D.C.I.T , CENTRAL CIRCLE - 2 , RAJKOT . (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI M.J. RANPURA, A.R REVENUE BY : SHRI B.B. RAJENDRA PRASAD, CIT . DR / DATE OF HEARING : 03 / 06 / 201 9 / DATE OF PRONOUNCEMENT: 25 / 06 /201 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL S HAVE BEEN FILED AT THE INSTANCE OF ASSESSE E AGAINST THE ORDER S OF THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) - 11 , AHMEDABAD [ LD. CIT (A) IN SHORT] OF EVEN DATED 28/07/2015 ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 153C R.W.S 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR S (A . Y S ) 20 11 - 2012 AND 2012 - 2013 . ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 2 FIRST , WE TAKE ITA NO.458/RJT/2015 FOR A.Y. 2011 - 12. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.0 THE GROUNDS OF APPEAL MENTIONED HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER. 2.0 THE INITIATION OF ACTION U/S 153C OF THE ACT IS TOTALLY BAD ON FACTS AS ALSO IN LAW AND THE SAME MAY KINDLY BE DROPP ED. 3.0 THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - L 1, AHMEDABAD [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED ON FACTS AS ALSO IN LAW IN RETAINING DISALLOWANCE OF RS.1,95,000/ - MADE OUT OF INTEREST EXPENSES ON ACCOUNT OF ALLEGED DIVERSION OF INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSE. THE DISALLOWANCE CONFIRMED IS TOTALLY UNJUSTIFIED ON FACTS AS ALSO IN LAW AND MAY KINDLY BE DELETED. 4.0 THE ID. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN SUSTAINING THE ADDITION OF RS.5,98,0007 - MADE BY THE AO ON ACCOUNT OF ALLEGED ON MONEY RECEIPT. THE ADDITION CONFIRMED IN TOTAL DISREGARDS TO THE FACTS ON RECORD AND SUBMISSIONS FURNISHED FROM TIME TO TIME IS TOTALLY UNJUSTIFIED AND DESERVES TO BE DELETED MAY KINDLY BE DELETED. 5.0 YOUR HONOR'S APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, OR WITHDRAW ANY OR MORE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF APPEAL. 2. A T THE OUTSET, WE NOTE THAT THE LEARNED AR FOR THE ASSESSEE HAS NOT ADVANCED ANY ARGUMENT ON GROUND NO. 1 AND 2 RAISED IN THE MEMO OF APPEAL. THEREFORE, IN THE ABSENCE OF ANY ARGUMENT, WE DISMISS THE SAME AS NOT PRESSED. THE NEXT ISSUE RAISED BY THE ASSES SEE IN THE GROUND NO. 3 IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE DISALLOWANCE OF INTEREST EXPENSES AT RS. 1 , 95 , 000 .00 ON ACCOUNT OF DIVERS ION OF INTEREST - BEARING FUND FOR NO N BUSINESS PURPOSES. 3. BRIEFLY STAT ED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND CONSTRUCTION ACTIVITIES. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 3 THE ASSESSEE HAS DIVERTED THE INTEREST - BEARING FUND FOR NON - BUSINESS PURPOSES BY GIVING TEMPORARY LOAN TO ITS ASSOCIATED CONCERN. THUS THE AO WAS OF THE VIEW THAT THE ASSESSEE , ON THE ONE HAND, HAS CLAIM ED THE INTEREST EXPENDITURE ON THE LOAN BORROWED BY IT AND ON THE OTHER HAND IT HAS GIVEN LOAN TO THE ASSOCIATED CONCERN WITHOUT CHARGING ANY INTEREST. THE AMOUNT OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS OF 3 , 90 ,2 55 .00 ONLY. ACCORDINGLY , THE AO DISALLOWED THE 50% OF INTEREST EXPENSES AMOUNTING TO 1 , 95,000 .00 ONLY AND ADDED TO THE TOTAL INC OME OF THE ASSESSEE. THE A GGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 4. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITTED THAT IT HA D GIVEN TEMPORARY LOAN TO ITS ASSOCIATED CONCERN OUT OF ITS OWN FUND AND INTEREST - FREE UNSECURED LOAN AMOUNTING TO RS. 22 , 57 , 000 .00 AND 23 , 50 , 000 .00 RESPECTIVELY. 4.1 THE ASSESSEE ALSO CLAIMED TO HAVE GIVEN TEMPORARY LOAN TO ITS ASSOCIATED CONCERN FOR THE BUSINESS EXPEDIENCY. 4.2 HOWEVER, THE LEARNED CIT (A) DISREGARDED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE TEMPORARY LOAN WAS PROVIDED TO THE ASSOCIATED CONCERN TO EXTEND THE FINANCIAL HELP WHICH DOES NOT HAVE ANY CONNECTION WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. ACCORDINGLY , THE LEARNED CIT (A) HELD THAT THERE C OULD NOT BE ANY DEDU CTION ON ACCOUNT OF SUCH INTEREST EXPENSES ON THE FUNDS DIVERTED FOR THE NON - BUSINESS PURPOSES. 5. BEING AGGRIEVED BY THE ORDER OF LEARNE D C IT - A THE ASSESSEE IS IN APPEAL BEFORE US . ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 4 6. T HE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 46 AND SUBMITTED AS UNDER : (I) AT THE TIME OF MAKING ADVANCES OF RS. 41,00,000 / - TO THE SISTER CONCERN M/S. SHIVKRUPA BUILDCON , THE J APPELLANT WAS HAVING SUFFICIENT OWN FUNDS IN THE FARM OF PARTNERS' CAPITAL OF RS. 22,57,0007 - AND INTEREST FREE UNSECURED LOAN OF RS. 23,50,0007 - . (COPIES OF BALANCE SHEET AND TRIAL BALANCE ARE ATTACHED AT PAGE 12 TO 14 OF PAPER BOOK). (II) TH EREFORE, FUNDS BORROWED FROM THE BANK IS AS SUCH MERGED WITH THE OWNED FUNDS AND OTHER INTEREST FREE UNSECURED LOAN HELD BY THE APPELLANT AND ADVANCES GIVEN TO M/S. SHIVKRUPA BUILDCON IS OUT OF SUCH POOL OF FUNDS. HENCE, THE ALLEGATION OF THE AO 7 LD. CIT( A) AS TO THAT THE ADVANCES GIVEN TO M/S. SHIVKRUPA BUILDCON HAS DIRECT NEXUS WITH THE BORROWED FUND IS DEVOID OF FACTS. (III) IT IS VERIFIABLE FROM THE BALANCE SHEET THAT THE APPELLANT WAS HAVING INVESTMENT IN BUSINESS INVENTORY (WIP) OF RS. 36,57,367/ - , WHICH IS OUT OF PARTNERS' CAPITAL AND SAID INTEREST FREE FUNDS. THE APPELLANT INSTEAD OF WITHDRAWING ITS INVESTMENT FR OM BUSINESS INVENTORY AND REAPPLYING THE SAID FUNDS IN MAKING ADVANCE TO M/S. SHIVKRUPA BUILDCON HAS DIRECTLY MADE ADVANCES OUT OF THE CASH CREDIT FACILITY OBTAINED FROM BANK. THIS DOES NOT MEAN THAT THE INTEREST FREE ADVANCES IS MADE OUT OF BORROWED FUNDS TO JUSTIFY THE ACTION OF THE AO IN DISALLOWING THE PROPORTIONATE INTEREST EXPENSE. (IV) RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. RAJENDRA BROTHERS (2014) 52 TAXMAN.COM, WHEREIN, IT HELD THAT BORROWED F UNDS WAS MERGED WITH THE FUNDS AVAILABLE FOR THE BUSINESS AND HAVING REGARD TO THE FACT THAT FRESH ADVANCES ARE GIVEN FROM THE SAID POOL OF FUNDS, PROPORTIONATE INTEREST EXPENSE CANNOT BE DISALLOWED. (V) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT AND ITS SISTER CONCERN M/S. SHIVKRUPA BUILDCON, BOTH ARE IN THE SAME LINE OF BUSINESS, I.E., REAL ESTATE AND CONSTRUCTION. THEREFORE, AT THE TIME OF LIQUIDITY PROBLEM IN ANY OF THE CONCERN, THE OTHER CON CERN HAVING SURPLUS / EXCESS FUNDS HELPS THE OTHER TO \ MITIGATE SHORT TERM WORKING CAPITAL DEFICIENCY. THIS ARRANGEMENT BETWEEN BOTH THE CONCERNS IS PURELY IN THE NATURE OF BUSINESS / COMMERCIAL EXPEDIENCY SO AS TO ENABLE THE GROUP AS A WHOLE TO GROW. HON 'BLE HIGH COURT OF MADRAS IN THE CASE OF INDUSTRIAL FEEDERS VS. ACIT (2016) 68 TAXMANN.COM 92 (MADRAS) HELD THAT WHERE BOTH ASSESSEE AND ITS SISTER CONCERN WHOM ASSESSEE HAD ADVANCED LOANS WERE MANUFACTURER OF G.I. CASTINGS, WITHOUT INDICATING DIFFERENCE I N NATURE OF THEIR BUSINESS ACTIVITIES, REVENUE COULD NOT DISALLOW INTEREST ON BORROWED CAPITAL ON GROUND THAT LOAN WAS ADVANCED FOR NON - BUSINESS PURPOSE. (VI) ALSO, IT IS A COMMON INDUSTRIAL PRACTICE THAT WHEN ONE OF THE CONCERN IS NOT ABLE TO GENERATE / OBTAIN CREDIT FACILITY FROM THE BANK DUE TO THE LACK OF SUFFICIENT ASSETS ON MORTGAGE, THEN ON THE ASSETS OF THE OTHER ASSOCIATE CONCERN, THE LOAN IS OBTAINED AND USED FOR THE PURPOSE OF THE BUSINESS. IN SUCH CASE, DISALLOWANCE OF PROPORTIONATE INTEREST EX PENSE IS NOT JUSTIFIED. RELIANCE IS PLACED ON THE DECISION OF ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 5 HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. DALAMIA CEMENT (P) LTD. (2002) 254 ITR 377 (DELHI) HON'BLE SUPREME COURT OF INDIA IN THE CASE OF S.A. BUILDERS VS. CIT (2007) 288 ITR 1(SC) HON'BLE SUPREME COURT OF INDIA IN THE CASE OF HERO CYCLES (P) LTD. VS. CIT (2015) 379 ITR 347 (SC) ONCE IT IS ESTABLISHED THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE I TSELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM - CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT AND THAT THE REVENUE AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THA T OF A PRUDENT BUSINESSMAN. [PARA 13] (VII) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT AND M/S. SHIVKRUPA BUILDCON, BOTH ARE ASSESSED TO TAX IN SAME TAX BRACKET AND THEREFORE, EVEN IF INTEREST WOULD HAVE BEEN CHARGED BY THE APPELLANT FROM M/S. SHIVKRUP A BUILDCON, THE SAME WOULD BE CLAIMED AS DEDUCTION BY M/S. SHIVKRUPA BUILDCON FROM ITS TAXABLE BUSINESS INCOME. HENCE, APPARENTLY, THERE IS NO LOSS TO REVENUE IN SUCH ARRANGEMENT. (VIII) IN VIEW OF THE ABOVE, THE DISALLOWANCE RETAINED BY THE LD. CIT(A) MA Y KINDLY BE DELETED. 6. O N THE OTHER HAND, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE ALL THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET , WE NOTE THAT THE ASSESSEE HAD SUFFICIENT FUND WITH ITSELF TO PROVIDE THE INTEREST - FREE FUND TO ITS ASSOCIATED CONCERN. THEREFORE IN SUCH FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF INTEREST IS WARRANTED AS MADE BY THE AUTHORITIES B ELOW. ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 6 7.1 WE FIND SUPPORT AND GUIDANCE FROM THE JUDGEMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WH ERE IN IT WAS HELD AS UNDER: - THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILA BLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL . 7.2 SIMILARLY, WE ALSO RELY ON THE JUDGMENT OF THE HON BLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS . HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: - WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. 7.3 SIMILARLY, WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. REPORTED IN 32 TAXMANN.COM 370 WHERE THE HEADNOTE READS AS UNDER : IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A . I N VIEW OF THE ABOVE, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 7 THE 2 ND ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 4 IS THAT THE LEARNED CIT (A) ERRED I N CONFIRMING THE ADDITION OF 5, 98 , 000 .00 ON ACCOUNT OF ON MONEY RECEIVED. 8. THERE WAS A SEARCH AND SEIZURE OPERAT ION UNDER SECTION 132 OF THE ACT AT THE RESIDENTIAL PREMISES OF SHRI PANKAJ V PATEL (A PARTNER OF THE FIRM) DATED 25 TH AUGUST 2011. SHRI PANKAJ V PATEL IN THE STATEMENT FURNISHED UNDER SECTION 132(4) OF THE ACT RECORDED DATED 25 TH AUGUST 2011 ADMITTED THAT HE HAD CHARGED 300 TO 400 PER SQUARE FEET AS ON MONEY IN THE PROJECT UNDERTAKEN BY THE GROUP. AS SUCH , THE ASSESSEE HAS UNDERTAKEN THE PROJECT NAMELY MAHALAXMI - 2 CONSISTING OF 25 FLATS. THE ASSESSEE IN THE RETURN OF INCOME HAS ALSO O FFERED AN INCOME OF 1 LAKH ON AD - HOC BASIS. IN VIEW OF THE ABOVE, AND AFTER CONSIDERING THE STATEMENT OF SHRI PANKAJ V PATEL DATED 25 AUGUST 2011 , THE AO WORKED OUT THE ON MONEY OF 3 , 63 , 000 .00 AND PROPOSED TO MAKE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. 8.1 IN RESPONSE T O IT , THE ASSESSEE CLAIMED THAT THERE WAS NO EVIDENCE FOUND DURING SEARCH SUGGESTING THAT IT WAS ENGAGED IN COLLECTING ON MONEY FROM THE PARTIES . 8.2 HOWEVER, THE AO DISAGREED WITH THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THERE WERE SEV ERAL DOCUMENTS FOUND DURING THE SEARCH PROCEEDINGS WHICH ARE MARKED AS A NNEXURE A - 6 CONTAINING PAGES 1 TO 66 INCLUDING THE TRIAL BALANCE. HOWEVER, THE ENTRIES SHOWN IN THE TRIAL BALANCE WERE NOT MATCHING WITH THE ENTRIES RECORDED BY THE ASSESSEE IN THE REG ULAR ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 8 BOOKS OF ACCOUNTS. ACCORDINGLY, THE AO REJECTED THE BOOKS OF ACCOUNTS UNDER SECTION 145 ( 3 ) OF THE ACT. 8.3 THE AO FURTHER FOUND THAT THE ASSESSEE HAS RECEIVED ON MONEY OF 6 , 98 , 000 .00 FROM SHRI MAHESHBHAI GORDHAN BHAI AGAINST THE SALE OF FLAT NO. 205 WHICH WAS TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. AS THE ASSESSEE HAS ALREADY DISCLOSED 1 LAKH ON AD HOC BASIS, THEREFORE THE BALANCE AMOUNT OF 5 , 98 , 000 .00 WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE A GGR IEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 8.4 THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITTED THAT THE ENTRIES , AS SHOWN IN THE SEIZED TRIAL BALANCE WERE RECORDED V E RY UNSYSTEMATIC ALLY AND IN A HAPHAZARD MANNER. ACCORDINGLY , THE ASSESSE E CLAIMED THAT THE RECONCILIATION OF THE ENTRIES REFLECTED IN THE TRIAL BALANCE WITH THE REGULAR BOOKS OF ACCOUNTS WAS NOT POSSIBLE. 8.5 HOWEVER , THE LEARNED CIT (A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVIN G AS UNDER: THE SUBMISSION OF THE APPELLANT AND THE CONTENTION OF THE AO HAVE BEEN PERUSED. AS DISCUSSED ABOVE, ALL THE NOTINGS RECORDED IN THE SEIZED MATERIAL WERE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS OF THE ASSESSEE. THE APPELLANT DURING APPEAL PROCEEDINGS ALSO REPEATED THE SUBMISSIONS WHICH HE FURNISHED BEFORE THE AO. AFTER PERUSAL OF THE CONTENTS OF THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT IT WAS OBSERVED THAT ADMITTEDLY MOST OF THE TRANSACTIONS NOTED IN THE SEIZED DOCUMENTS C OULD NOT BE RECONCILED WITH THE BOOKS OF ACCOUNTS BY THE ASSESSEE. THUS, IT WAS ABUNDANTLY CLEAR THAT THE BOOKS OF ACCOUNTS OF THE - ASSESSEE WERE NOT SHOWING CORRECT AND COMPLETE STATE OF AFFAIRS OF THE BUSINESS OF THE ASSESSEE. THE APPELLANT DID NOT REBUT THE FINDING OF THE AO ABOUT THE AMOUNT MENTIONED IN THE TRIAL BALANCE OF RS.6,98,000/ - AS ON MONEY. IN VIEW OF THE FACTS AND CIRCUMSTANCES, IN MY CONSIDERED OPINION, THE ACTION OF THE AO WAS IN ORDER. ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 9 B EING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED AR BEFORE US SUBMITTED AS UNDER: (I) THE TRAIL BALANCE SEIZED (PAGE 15 & 16 OF PAPER BOOK) CONTAIN DRAFT/MEMORANDUM ENTRIES MADE BY THE ACCOUNTANT WITHOUT CONSIDERING THE ACTUAL DATE O( TRANSACTION AND A CTUAL NAME OF PARTY. THE ENTRIES IN THE COMPUTERIZED ACCOUNTING SOFTWARE WAS M;IDE IN TOTALLY HAPHAZARD AND UNSYSTEMATIC MANNER. (II) THE SAME SYSTEM OF MAINTAINING DRAFT / MEMORANDUM RECORDS IN COMPUTER SYSTEM WAS ALSO FOUND IN THE CASE OF PARTNER OF THE APPELLANT SHRI PANKAJBHAI V. PATEL. IN HIS CASE, SIMILAR TRIAL BALANCE CONTAINING THE VARIOUS ENTRIES AND BALANCES WERE FOUND & SEIZED. IN HIS CASE, HON'BLE INCOME - TAX SETTLEMENT COMMISSION VIDE ORDER PASSED U/S. 245D(4) OF THE ACT DATED 19.03.2015 ACCEPTED THE FACT THAT THE SAID TRIAL BALANCE IS OUTCOME OF UNSYSTEMATIC AND HAPHAZARD ENTRIES MADE BY THE ACCOUNTANT WITHOUT CONSIDERING THE ACTUAL DATE OF THE TRANSACTION. COPY OF RELEVANT PART OF ORDER PASSED BY THE HON'BLE SETTLEMENT COMMISSION IS ATT ACHED AT PAGE 44 AND 45 OF PAPER BOOK. (III) THEREFORE, THE SYSTEM OF HAVING SUCH DRAFT / MEMORANDUM RECORDS MAINTAINED BY THE ACCOUNTANT FOR HIS OWN PURPOSE IN THE ENTIRE GROUP CANNOT BE DOUBTED. (IV) IN THE INSTANT CASE, SEIZED TRIAL BALANCE SHOWS ADVANCE RECEIVED AGAINST SALE OF FLATS FROM VARIOUS PERSONS AT RS. 28,38,500/ - , AGAINST WHICH, AGGREGATE AMOUNT OF ADVANCES IN THE BOOKS OF ACCOUNT IS AT RS. 26,30,000/ - . RECONCILIATION OF ENTRIES / BALANCES AS PER SEIZED TRIAL BALANCE VIZ - A - VIZ ACTUAL BOOKS OF ACCOUNT AS FURNISHED BEFORE THE AO / LD. CIT(A) (COPY ATTACHED AT PAGE 42 OF PAPER BOOK). (V) THE REASON OF HAVING DIFFERENCE IN THE SEIZED TRIAL BALANCE AND ACTUAL BOOKS OF ACCOUNT IS ONLY BECAUSE OF THE FACT THAT THE TRANSACTIONS IN THE SEIZED DRAFT TRIAL BALANCE WAS ENTERED BY THE ACCOUNTANT HAPHAZARDLY AND UNSYSTEMATICALLY AND THEREFORE, THE CORRESPONDING LEDGER NAME AND AMOUNT IS NOT MATCHING WITH THE AUDITED BOOKS OF ACCOUNT. HO WEVER, IT DOES NOT MEAN THAT THE SAID UNMATCHED TRANSACTIONS / ENTRIES ARE UNACCOUNTED (OUT OF THE BOOKS). THEREFORE, THE ALLEGATION OF THE AO THAT THE AMOUNT OF RS. 28,38,500/ - REFLECTED IN THE SEIZED TRIAL BALANCE ARE NOT RECORDED IN REGULAR BOOKS OF ACC OUNT AND THEREFORE, THE SAME IS ON - MONEY RECEIVED BY THE APPELLANT IS TOTALLY INCORRECT AND UNJUSTIFIED. (VI) WITHOUT PREJUDICE TO THE ABOVE, THE AO HIMSELF TOOK THE COGNIZANCE ON THE STATEMENT OF SHRI PANKAJ PATEL RECORDED DURING THE SEARCH, WHEREI N, HE IN GENERAL STATED THE RATE OF ON - MONEY AROUND RS. 300 TO 400 PER SQUARE FEET. THEREFORE, EVEN FOR THE MOMENT, IT IS ASSUMED THAT THE APPELLANT FIRM HAS RECEIVED ON - MONEY IN THE PROJECT MAHALAXMI - 2, I.NEN THE UNACCOUNTED RECEIPTS FOR THE UNIT SOLD (10 13 SQUARE FEET) IN THE YEAR UNDER CONSIDERATION IS WORKED OUT AT RS. 3.00 TO 4.00 LACS. AND ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 10 AFTER APPLYING NET PROFIT RATE OF 20% ON SUCH UNACCOUNTED RECEIPTS, ADDITIONAL INCOME WORKS OUT TO RS. 60,000/ - TO RS. 80.000/ - ONLY. THEREFORE, ADDITIONAL INCOME O FFERED BY THE APPELLANT AT RS. 1,00,000/ - ON AD - HOC BASIS TAKES CARE OF THE ALLEGED DISCREPANCIES IN THE SEIZED DOCUMENTS. (VII) IN CONNECTION WITH THE ABOVE, THE APPELLANT RELIES ON FOLLOWING DECISIONS HOLDING THAT WHAT IS TO BE TAXED IS ONLY PROFIT EMBEDDED ON UNACCOUNTED TAXABLE RECEIPTS AND NOT THE ENTIRE RECEIPTS. HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. ABHISHEK CORPORATION IN INCOME TAX REFERENCE NO. 15 OF 2003 HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. PRESIDENT INDUSTR IES - 258 ITR 654 (GUJ) HON'BLE HIGH COURT OF GUJARAT IN THE CASE; OF CIT VS. GURUBACHHAN SINGH J. JUNEJA - 302 ITR 63 HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF JAY BUILDER VS. ACIT (2013) 215 TAXMAN 50 (GUJARAT) (VIII) IT IS ALSO SUBMITTED THAT THE TRIAL BALANCE SEIZED CONTAINS NOTING OF RECEIPTS AND PAYMENT BOTH. THE AO HAS ONLY CONSIDERED THE RECEIPTS FOR DETERMIMRG UNACCOUNTED ADDITIONAL INCOME AND IGNORED THE PAYMENT / EXPENSE SIDE. THIS ACTION OF THE AO IN TOTALLY UNJUSTIFIED AS IT IS WELL S ETTLED LAW THAT THE SEIZED DOCUMENTS HAS TO BE READ AS A WHOLE, AND THE REVENUE CANNOT PICK AND CHOOSE FAVORABLE PART AND IGNORE UNFAVORABLE. (IX) ALSO, IN THE CASE OF OTHER GROUP CASES, I.E., M/S. SHIVKRUPA BUILDCON AND M/S. ADITI INFRASTRUCTURE AND DEVELOPERS, HON'BLE SETTLEMENT COMMISSION HAS ESTIMATED NET PROFIT ON UNACCOUNTED RECEIPTS FOR WORKING OUT TRUE AND CORRECT ADDITIONAL INCOME. (X) IN VIEW OF THE ABOVE, ADDITION MADE BY THE AO IN RESPECT OF ENTIRE ALLEGED UNACCOUNTED RECEIPTS OF RS. 5,98,000/ - MAY KINDLY BE DELETED. 7. O N THE OTHER HAND , THE LEARNE D DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION , WE NOTE THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE HA VE BEEN REJECTED UNDER THE PROVISIONS OF ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 11 SECTION 145 ( 3 ) OF THE ACT. IN OUR CONSIDERED VIEW , ONCE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED, THE ONLY RESORT AVAILABLE TO THE R EVENUE I S TO ESTIMATE THE INCOME OF THE ASSESSEE ON A REASONABLE/SCIENTIFIC BASIS. HOWEVER , IN THE CASE ON HAND, WE NOTE THAT THE REVENUE HAD MADE THE ADDITION ON ACCOUNT OF ON MONEY AFTER REFERRING TO THE SEIZED MATERIAL WHICH APPEARS CONTRARY TO THE LAW SETTLE D BY THE COURTS IN VARIOUS JUDG MENTS WHEREIN IT WAS HELD THAT THE PROFIT OF THE ASSESSEE HAS BE DETERMINED ON ESTIMATED BASIS IN THE EVENT OF THE REJECTETION OF THE BOOKS. 8.1 WE ALSO NOTE THAT THE ON MONEY REPRESENTS THE BUSINESS RECEIPTS. THEREFORE THE E NTIRE AMOUNT CANNOT BE TREATED AS INCOME OF THE ASSESSEE UNLESS IT IS EXTABLISHED THAT THE ASSESSEE HAS CLAIMED THE CORRESPONDING EXPENSES AGAINST SUCH INCOME. IN THIS REGARD , WE FIND SUPPORT AND GUIDANCE FROM THE JUDGEMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF PRESIDENT INDUSTRIES REPORTED IN 258 ITR 654 WHEREIN IT WAS HELD AS UNDER: THE AMOUNT OF SALES BY ITSELF CANNOT REPRESENT THE INCOME OF THE ASSESSEE WHO HAS NOT DISCLOSED THE SALES. THE SALES ONLY REPRESENT THE PRICE RECEIVED BY THE SELLER OF THE GOODS FOR THE ACQUISITION OF WHICH IT HAS ALREADY INCURRED THE COST. IT IS THE REALISATION OF EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT INCLUDED IN THE CONSIDERATION OF SALES. THEREFORE, UNLESS THERE IS A FINDING TO THE EFFECT THAT THE INVESTMENT BY WAY OF INCURRING COST IN ACQUIRING GOODS WHICH HAVE BEEN SOLD HAS BEEN MADE B Y THE ASSESSEE AND THAT HAS ALSO NOT BEEN DISCLOSED, THE QUESTION WHETHER ENTIRE SUM OF UNDISCLOSED SALES PROCEEDS CAN BE TREATED AS INCOME, ANSWERS BY ITSELF IN THE NEGATIVE. 8.2 W E FURTHER NOTE THAT THE AO MADE THE ADDITION ON ACCOUNT OF THE REVENUE TR ANSACTIONS. AS SUCH , THERE WAS NO INCRIMINATING DOCUMENT FOUND DURING THE SEARCH EVIDENCING THAT THE ASSESSEE HAS RECEIVED ON MONEY IN RESPECT OF ITS PROJECT EXCEPT THE STATEMENT RECORDED UNDER SECTION 132 ( 4 ) OF THE ACT. IN OUR CONSIDERED VIEW IN THE ABSEN CE OF ANY EVIDENCE REGARDING THE ON ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 12 MONEY, THE INCOME CAN BE DECIDED ON AN ESTIMATED BASIS AFTER CONSIDERING THE HISTORY OF THE ASSESSEE AND THE COMPARABLE CASES. 8.3 WE ALSO NOTE THAT IN THE GIVEN FACTS AND CIRCUMSTANCES I N THE OWN GROUP OF THE ASSESSEE THE NET PROFIT AT THE RATE OF 20% OF THE GROSS RECEIPT H AS BE EN DETERMINED BY THE I NCOME T AX S ETTLEMENT C OMMISSION. THEREFORE WE ARE OF THE VIEW THAT THE JUSTICE WILL BE SERVED TO THE REVENUE AND THE ASSESSEE IF THE INCOME OF THE ASSESSEE IS DETERMINED AT THE RATE OF 20% OF THE GROSS RECEIPTS. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. I N THE RESULT , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. COMING TO THE ITA NO. 459 /AHD/2015 FOR A.Y. 2012 - 13. T HE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.0 THE GROUNDS OF APPEAL MENTIONED HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER. 2.0 THE INITIATION OF ACTION U/S 153C OF THE ACT IS TOTALLY BAD ON FACTS AS ALSO IN LAW AND THE SAME MAY KINDLY BE DROPPED. 3.0 THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 11, AHMEDABAD [HEREINAFTER REFERRED TO AS THE 'CIT(A)'] ERRED ON FACTS AS ALSO IN LAW IN HOLDING THAT THE AO'S ACTION OF REJECTION OF BOOKS OF ACCOUNT IS IN ORDER. THE ORDER OF THE ID. CIT(A) IN THIS REGARDS IS TOTALLY UNJUSTIFIED A ND THE AO MAY KINDLY BE DIRECTED TO ACCEPT THE BOOK RESULTS. 4.0 THE ID. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN SUSTAIN ING THE ADDITION OF RS. 29,80,200/ - MADE BY THE AO ON ACCOUNT OF ALLEGED ON MONEY RECEIPTS. THE ADDITION CONFIRMED IN TOTAL DISREGARDS TO TH E FACTS ON RECORD AND SUBMISSIONS FURNISHED FROM TIME TO TIME IS TOTALLY UNJUSTIFIED AND DESERVES TO BE DELETED MAY KINDLY BE DELETED. 5.0 THE ID. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING THE ADDITION OF 8,10,0007 - MADE ON ACCOUNT OF ALLEGED UNACCOUN TED INCOME ON SALE OF FLATS / ADVANCES RECEIVED. THE ADDITION MADE IN TOTAL DISREGARDS TO THE FACTS ON RECORD IS TOTALLY UNJUSTIFIED AND DESERVES TO BE DELETED, MAY KINDLY BE DELETED. 6.0 YOUR HONOR S APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, OR WITHDR AW ANY OR MORE GRONDS OF APPEAL ON OR BEFORE THE HEARING OF APPEAL. ITA NO.458 - 459 /RJT/2015 ASSTT. YEAR S 2011 - 12 & 2012 - 13. 13 9. A T THE OUTSET, WE NOTE THAT THE LEARNED AR FOR THE ASSESSEE HAS NOT ADVANCED ANY ARGUMENT ON GROUND NO. 1 AND 2 RAISED IN THE MEMO OF APPEAL. THEREFORE, IN THE ABSENCE OF ANY ARGUMEN T, WE DISMISS THE SAME AS NOT PRESSED. THE NEXT INTERCONNECTED ISSUE RAISED BY THE ASSESSEE IN THE GROUND NO. 3 TO 5 IS THAT THE LEARNED CIT (A) ERRED IN REJECTING THE BOOKS OF ACCOUNTS AND CONFIRMING THE ADDITION OF 37,90,200.00 ON ACCOUNT OF ON MONEY RECEIVED/ UNACCOUNTED INCOME ON THE SALE OF THE FLATS. 10. AT THE OUTSET, WE NOTE THAT THE IDENTICAL ISSUE RAISED BY THE ASSESSEE IN ITA 458/RJT/2015 WHICH HAVE BEEN DECIDED BY US PARTLY IN FAVOUR OF THE ASSESSEE V IDE PARAGRAPH NUMBER 8 OF THIS ORDER. FOR DETAILED DISCUSSION PLEASE REFER THE RELEVANT PARAGRAPH. RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 25 /06 / 2019 AT AHMEDABAD. - SD - - SD - (RAJPAL YADAV ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 25 / 06 /2019 MANISH