ACIT, Trivandrum V. M.M.Sulaiman, Kollam

ITA 46/COCH/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69072 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 14-01-2011
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: PHILIP JOSEPH
• Keywords: Unexplained investment; Search and seizure; Document seized; Principle of natural justice; Opportunity of cross examination; Peak credit; Source of fund; Corroborative evidences; Revised return; Documents seized
• Section: 153A; 132; 139; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 726-730/COCH/2010 ASSESSMENT YEARS : 2001-02 TO 2005-06 M.M. SULAIMAN, SAFIA ESTATE, PUTHUSSERY, NILAMEL, KOLLAM. PAN: AAOPH 1159F] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE- 1, TRIVANDRUM. (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) I.T.A. NOS. 46-49/COCH/2011 & 359 & 360/COCH/2011 ASSESSMENT YEARS : 2002-03-2007-08 1. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, TRIVANDRUM. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, TRIVANDRUM. VS. M.M. SULAIMAN, SAFIA ESTATE, PUTHUSSERY, NILAMEL, KOLLAM. PAN: AAOPH 1159F] (REVENUE-APPELLANT) (ASSESSEE- RESPONDENT) REVENUE BY SHRI K.K. JOHN, SR. DR ASSESSEE BY SHRI PHILIP JOSEPH, CA DATE OF HEARING 04/11/2013 DATE OF PRONOUNCEMENT 13/11/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THESE APPEALS FILED BY THE ASSESSEE/R EVENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-III, KOCHI AND THEY RELATE TO T HE ASSESSMENT YEARS 2001-02 TO 2007-08. ALL THESE APPEALS WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 2 BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. HOWEVER, WE PREFER TO ADJUDICATE THE APPEALS ASSESSMENT YEAR WISE. 2. WE SHALL FIRST DISCUSS THE FACTS RELATING TO THE CASE IN BRIEF. THE ASSESSEE HEREIN IS A BROKER IN REAL ESTATE AND VEHICLES. THE REVEN UE CARRIED OUT SEARCH AND SEIZURE OPERATIONS IN THE HANDS OF THE ASSESSEE U/S 132 OF THE ACT ON 13.02.2006. CONSEQUENT THERETO, THE NOTICES U/S 153A OF THE ACT WAS ISSUED FOR ASSESSMENT YEARS 2001-02 TO 2007-08. IN RESPONSE THERETO, THE ASSESSEE FILED R ETURNS OF INCOME FOR ALL THE YEARS MENTIONED ABOVE AND THE ASSESSMENTS WERE COMPLETED BY MAKING VARIOUS TYPES OF ADDITIONS IN ALL THE YEARS. THE ASSESSEE CHALLENGE D ALL THE ASSESSMENT ORDERS BY FILING APPEALS BEFORE LD CIT(A) AND GOT PARTIAL RELIEF. A GGRIEVED BY THE ORDERS PASSED BY LD CIT(A), BOTH THE PARTIES HAVE FILED APPEALS BEFORE US CHALLENGING THE DECISION OF THE FIRST APPELLATE AUTHORITY ON THE ISSUES DECIDED AGA INST EACH OF THEM. 3. FOR ASSESSMENT YEAR 2001-02, THE ASSESSEE ONL Y HAS FILED APPEAL BEFORE US, WHEREIN HE IS CHALLENGING THE ADDITION OF RS.50,000 /- (OUT OF RS.4,50,000/-) CONFIRMED BY LD CIT(A). THE FACTS RELATING THERETO ARE STATE D IN BRIEF. IN RESPONSE TO THE NOTICE U/S 153A OF THE ACT, THE ASSESSEE FILED RETURN OF I NCOME DECLARING A TOTAL INCOME OF RS.1.00 LAKH AND AGRICULTURAL INCOME OF RS.1.50 LAK HS. DURING THE COURSE OF SEARCH OPERATION, THE DEPARTMENT HAD SEIZED A DOCUMENT NUM BERED AS VJJ-3(5), WHICH HAPPENED TO BE AN AGREEMENT DATED 28-02-2001 ENTERE D BY THE ASSESSEE WITH HIS WIFE SMT. ASHIFA BEGUM IN CONNECTION WITH PURCHASE OF A PROPERTY. THE FACTS RELATING TO THE SAID AGREEMENT HAS BEEN NARRATED BY THE ASSESSING O FFICER IN HIS REMAND REPORT FILED BEFORE LD CIT(A) AS UNDER:- THE ASSESSEES WIFE SMT. ASHIFA BEGUM ENTERED INTO AN AGREEMENT FOR PURCHASE OF 17.05 ARES PROPERTY AT VANCHIYOOR VILLAGE WITH S HRI E.V. ALEXANDER OF TC.26/1, SECRETARIAT WARD, VANCHIYOOR VILLAGE, TRIVANDRUM FO R A TOTAL CONSIDERATION OF RS.80,00,000/- AND PAID RS.4,50,000/- (SIC RS.4,00, 000/-) AS ADVANCE. THE ABOVE MENTIONED AGREEMENT WAS ENTERED ON 29.11.1999 , I.E., DURING THE FINANCIAL YEAR 1999-2000. THIS AGREEMENT GOT REVIS ED FOR ANOTHER 6 MONTHS FROM 1.5.2000 AND ASSESSEES WIFE PAID ANOTHER RS.50,000 /- TO MARY MATHEW, W/O E.V.ALEXANDER ON 6-10-2000. THUS THE TOTAL AMOUNT O F ADVANCE PAID BY ASSESSEES WIFE WAS RS.4,50,000/-. SUBSEQUENTLY, T HE ASSESSEE SHRI M.M.SULAIMAN ENTERED INTO AN AGREEMENT DT. 28.02.20 01 WITH HIS WIFE FOR I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 3 PURCHASE OF THE SAID PROPERTY..THIS AGREEMENT IS P ART OF SEIZED DOCUMENT VJJ- 3(5) AND THE ASSESSMENT U/S 153A WAS COMPLETED ON T HE BASIS OF THIS DOCUMENT WITH REGARD TO THE SOURCES FOR THE PAYMENT OF RS.4. 50 LAKHS, THE ASSESSEE EXPLAINED THAT IT WAS PAID OUT OF THE LOAN OF RS.10.00 LAKHS RECEIVED FROM ASSESSEES BROTHER NAMED SHRI A.R. SHAJAHAN. HOWEVER, THE ASSESSEE DI D NOT FILE ANY CONFIRMATION LETTER FROM HIM AND HENCE THE ASSESSING OFFICER ADDED THE ABOVE SAID AMOUNT OF RS.4.50 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS, T HE LD CIT(A) CALLED FOR A REMAND REPORT FROM THE AO. IN THE REMAND PROCEEDINGS, THE CONFIRMATION LETTER OBTAINED FROM SHRI A.R. SHAJAHAN WAS EXAMINED BY THE AO AND HE NO TICED THAT SHRI SHAJAHAN HAS CLAIMED TO HAVE GIVEN THE AMOUNT OF RS.10.00 LAKHS TO ASSESSEES WIFE BY WAY OF CHEQUE NO.933034 DATED 15.7.2000. FURTHER THE AO O BTAINED BANK ACCOUNT COPIES FROM M/S FEDERAL BANK, NANTHENCODE BRANCH AND NOTIC ED THAT SHRI SHAJAHAN DID NOT ISSUE ANY CHEQUE NUMBERED AS 933034 ON 15.7.2000. ACCORDINGLY, THE AO CONCLUDED IN THE REMAND REPORT THAT THE ASSESSEES CLAIM OF RECE IPT OF LOAN FROM SHRI SHAJAHAN AS SOURCE FOR THE AMOUNT OF RS.4.50 LAKHS PAID BY HIM TO HIS WIFE ON 28.02.2001 IS NOT CORRECT. FURTHER HE STATED THAT THE CONTENTS OF TH E CONFIRMATION LETTER GIVEN BY SHRI SHAJAHAN WERE ALSO PROVED TO BE WRONG. ACCORDINGLY , THE AO STOOD BY THE ADDITION OF RS.4.50 LAKHS MADE BY HIM. 5. BEFORE LD CIT(A), THE ASSESSEE POINTED OUT T HAT THE AMOUNT OF RS.4.50 LAKHS WAS ACTUALLY PAID BY HIS WIFE AS PER THE ORIGINAL AGREE MENT ENTERED BY HER WITH SHRI E.V. ALEXANDER AND SMT. MARY MATHEW. IT WAS SUBMITTED T HAT THE ASSESSEE DID NOT PAY ANY AMOUNT TO HIS WIFE AS PER THE AGREEMENT DATED 28-02 -2001 ENTERED BY HIM WITH HER. THE LD CIT(A) EXAMINED THE ABOVE SAID AGREEMENT AND HAS GIVEN A CLEAR FINDING AS UNDER IN PARAGRAPH 10 OF HIS ORDER:- .BUT THE FACT REMAINS THAT THIS AGREEMENT DOES N OT MENTION AT ALL THAT SMT. ASHIFA BEGUM HAD RECEIVED ANY CONSIDERATION FROM TH E APPELLANT FOR PASSING OVER HER RIGHTS ACQUIRED THROUGH THE AGREEMENT DATED 29. 11.1999. HENCE AS PER THE APPELLANT THE CONTENTION OF THE A.O. IN PARA 3 OF T HE ASSESSMENT ORDER THAT THE APPELLANT HAD PAID RS.4,50,000/- VIDE AGREEMENT DAT ED 28-02-2001 IS WRONG. I HAVE CAREFULLY PERUSED THE SEIZED DOCUMENTS AS MENT IONED IN THE ORDER AND HAVE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 4 VERIFIED THE CONTENTS MENTIONED THEREIN. IT IS FOU ND THAT NOWHERE IN THE AGREEMENT IT HAS BEEN MENTIONED THAT SMT. ASHIFA BE GUM HAS RECEIVED ANY CONSIDERATION OR RS.4,50,000/- FROM THE APPELLANT F OR PASSING ON HER RIGHTS ACQUIRED THROUGH THE AGREEMENT DATED 29.11.1999. H ENCE IN MY VIEW THE OBSERVATIONS MADE BY THE AO IN THE IMPUGNED ORDER A RE NOT CORRECT OR BORNE OUT OF THE FACTS AVAILABLE IN RECORD. THE LD CIT(A) TOOK THE VIEW THAT EVEN IF THE WHOLE TRANSACTION IS CONSIDERED AS SHAM AND FURTHER EVEN IF IT IS INFERRED THAT SHRI M.M. S ULAIMAN HAD NOT DECLARED SOURCE TO PAY THE ENTIRE AMOUNT OF RS.4,50,000/- AS ADVANCE FOR P URCHASE OF LAND IN THE NAME OF HIS WIFE, THE AO CANNOT ASSESS THE SUM OF RS.4.00 LAKH S DURING THIS YEAR, SINCE IT WAS PAID AS PER AGREEMENT DATED 29.11.1999 AND HENCE THE SAI D PAYMENTS FALLS IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2000-01, I.E., IN T HE IMMEDIATELY PRECEDING YEAR. ACCORDINGLY, THE LD CIT(A) GRANTED RELIEF OF RS.4.0 0 LAKHS AND CONFIRMED THE BALANCE AMOUNT OF RS.50,000/-. AGGRIEVED BY THE ADDITION S USTAINED BY LD CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 6. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSU E AND PERUSED THE RECORD. THE LD CIT(A) HAS GIVEN A CLEAR FINDING THAT THE MADE OVE R AGREEMENT ENTERED BETWEEN THE ASSESSEE AND HIS WIFE DOES NOT SHOW THAT THE ASSESS EE HAS PAID THE AMOUNT OF RS.4.50 LAKHS TO HIS WIFE SMT. ASHIFA BEGUM. ACCORDINGLY, THE LD CIT(A) HAS EXPRESSED THE VIEW THAT THE OBSERVATIONS MADE BY THE ASSESSING OF FICER WITH REGARD TO THE PAYMENT OF RS.4.50 LAKHS ARE NOT CORRECT AND ALSO NOT BORNE OU T OF THE FACTS AVAILABLE IN RECORD. SINCE THE REVENUE DID NOT FILE ANY APPEAL AGAINST T HESE OBSERVATIONS MADE BY LD CIT(A), THESE FACTUAL ASPECTS NOTED BY LD CIT(A) HA S REACHED FINALITY. 7. WE NOTICE THAT THE LD CIT(A) HAS ALSO ADJUDI CATED THE ISSUE IN AN ALTERNATIVE VIEW, I.E., THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AN D HIS WIFE, EVEN IF CONSIDERED TO BE A SHAM ONE, THEN THE AMOUNT OF RS.4.00 LAKHS OUT OF RS.4.50 LAKHS IS NOT ASSESSABLE IN AY 2001-02, SINCE THE SAID AMOUNT WAS PAID IN TH E FY RELEVANT TO THE ASSESSMENT YEAR 2000-01. ACCORDINGLY, THE LD CIT(A) HAS GRANT ED RELIEF TO THE TUNE OF RS.4.00 LAKHS AND CONFIRMED THE ADDITION OF BALANCE AMOUNT OF RS.50,000/-, WHICH WAS PAID DURING THE FY RELEVANT TO THE AY 2001-02. HOWEVER, WE NOTICE THAT IT IS NOBODYS CASE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 5 THAT THE AGREEMENT REFERRED ABOVE IS A SHAM ONE. H ENCE, IN OUR VIEW, THE LD CIT(A) WAS NOT JUSTIFIED IN ENTERTAINING SUCH A PRESUMPTIO N IN RESPECT OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND HIS WIFE, AFT ER GIVING A CLEAR FINDING THAT NO CONSIDERATION PASSED HANDS IN PURSUANCE OF THE SAID AGREEMENT. 8. EVEN IF IT IS ASSUMED FOR A MOMENT THAT THE S AID AGREEMENT IS A SHAM AGREEMENT AND THE ASSESSEE ONLY ENTERED INTO THIS TRANSACTION AS ASSUMED BY LD CIT(A), THEN ALSO, IN OUR VIEW, THERE IS NO REQUIREMENT OF MAKING ANY ADDITION SINCE (A) THE AMOUNT PAID DURING THE YEAR UNDER CONSIDER ATION WAS ONLY RS.50,000/- AND (B) THE AMOUNT OF TOTAL INCOME AND AGRICULTURAL IN COME DECLARED BY THE ASSESSEE AGGREGATING TO RS.2.50 LAKHS WOULD BE SUFFICIENT EN OUGH TO EXPLAIN THE SOURCES FOR RS.50,000/-. 9. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION I N CONFIRMING THE ADDITION OF RS.50,000/- IN AY 2001-02. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ABOVE SAID ADDITION . 10. WE SHALL TAKE UP THE APPEALS FILED FOR ASSES SMENT YEAR 2002-03 BY BOTH THE PARTIES. THE ADDITIONS MADE BY THE AO, RELIEF GRAN TED/ADDITIONS SUSTAINED BY LD CIT(A) ARE TABULATED BELOW:- ITEMS AMOUNT RELIEF GRANTED ADDITION SUSTAINED AMOUNT PAID FOR PTP NAGAR PROPERTY 13,00,000 11,50,000 1,50,000 PURCHASE OF BENZ CAR 6,00,000 6,00,000 ---- PURCHASE OF CASHEW FACTORY 1,43,000 1,43,000 ----- DEPOSITS IN BANK ACCOUNT 35,45,376 15,15,000 20,30,376 I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 6 THE ASSESSEE IS CHALLENGING BOTH THE ADDITIONS SUST AINED BY LD CIT(A). THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) ON FOLLOWING IS SUES:- (A) AMOUNT PAID FOR PTP NAGAR PROPERTY. (B) PURCHASE OF BENZ CAR. (C) TELESCOPING OF RS.3.00 LAKHS FOR GRANTING RELIEF I N RESPECT OF BANK DEPOSITS. (D) RELIEF GRANTED IN RESPECT OF PURCHASE OF CAS HEW FACTORY. 11. THE FIRST ISSUE IS COMMON IN THE APPEALS FI LED BY BOTH THE PARTIES AND IT PERTAINS TO THE ADDITION MADE IN RESPECT OF PTP NAGAR PROPER TY. THE FACTS RELATING THERETO ARE STATED IN BRIEF. DURING THE COURSE OF SEARCH OPERA TION, THE DEPARTMENT SEIZED ONE AGREEMENT DATED 03-01-2002 ENTERED BY THE ASSESSEE WITH M/S MATILDA CARMEN AND MARY ISABELLA RUBELLA. AS PER THE SAID SALE AGREEM ENT, THE ASSESSEE HAD AGREED TO PURCHASE 13.125 CENTS OF LAND AT PTP NAGAR, TRIVAND RUM FOR A CONSIDERATION OF RS.19.00 LAKHS. THE ASSESSEE EXPLAINED THE SOURCES FOR GIVING THE ABOVE SAID AMOUNT AS UNDER:- SALE CONSIDERATION OF BENZ CAR OWNED BY THE ASSESS EE AND SOLD TO SMT. MATILDA CARMEN - 6.00 L AKHS AMOUNT RECEIVED FROM M/S S.I. PROPERTY ON BEHALF O F ASSESSEES BROTHER SHRI A.R. SHAJAHAN - 10 .50 LAKHS LOAN RECEIVED FROM SHRI A.R. SHAJAHAN - 10.00 LAKHS. BEFORE THE AO, THE ASSESSEE FILED COPIES OF CONFIRM ATION LETTERS OBTAINED FROM M/S S.I. PROPERTY. HOWEVER, THE ASSESSING OFFICER TOOK THE VIEW THAT M/S S.I. PROPERTY HAS RETURNED THE AMOUNT ONLY TO SHRI A.R. SHAJAHAN AND NOT TO THE ASSESSEE. HE ALSO STATED THAT NO PROOF WAS AVAILABLE TO SHOW THAT THE SAID MONEY WAS TRANSFERRED BY SHRI A.R. SHAJAHAN TO THE ASSESSEE. ACCORDINGLY, THE AO ADDED THE AMOUNT OF RS.19.00 LAKHS IN THE FOLLOWING MANNER:- INVESTMENT IN PTP NAGAR PROPERTY 13.00 LAKHS INVESTMENT IN PURCHASE OF BENZ CAR 6.00 LAKHS 12. IN THE APPELLATE PROCEEDINGS BEFORE LD CIT(A ), THE ASSESSEE PLEADED THAT THERE WAS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AS T HE ASSESSING OFFICER DID NOT GIVE ENOUGH TIME TO OFFER EXPLANATIONS. ACCORDINGLY, THE LD CI T(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. IN THE REMAND REPORT, THE A O ACCEPTED THAT A SUM OF RS.10.00 I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 7 LAKHS WOULD BE AVAILABLE WITH SHRI A.R. SHAJAHAN, S INCE M/S S.I. PROPERTY HAS REFUNDED A PART OF DEPOSIT ALREADY MADE BY HIM. BUT THE AO REPORTED THAT THERE IS NO EVIDENCE TO SHOW THAT THE SAID MONEY HAS REACHED THE HANDS O F THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FILED A CONFIRMATION LETTER OBTAINED FROM SHRI A.R.SHAJAHAN, WHEREIN IT WAS STATED THAT A LOA N OF RS.10.00 LAKHS WAS PAID BY HIM TO THE ASSESSEES WIFE NAMED SMT. ASHIFA BEGUM BY W AY OF CHEQUE NUMBER 933034 DRAWN ON 15.7.2000. DURING THE COURSE OF REMAND PR OCEEDINGS, THE ASSESSING OFFICER MADE ENQUIRIES WITH M/S FEDERAL BANK AND FOUND THAT THE CHEQUE NO. 933034 WAS USED TO DRAW A SUM OF RS.50,000/- ONLY ON 04-04-2001. A CCORDINGLY, THE AO CONCLUDED THAT THE ASSESSEE HAS FAILED TO PROVE THE NEXUS OF FINAN CIAL TRANSACTIONS OF SHRI A.R. SHAJAHAN WITH HIM, APPARENTLY MEANING THAT THERE IS NO PROOF TO SUBSTANTIATE THE CLAIM OF RECEIPT OF MONEY FROM SHRI SHAJAHAN. ACCORDINGL Y, THE AO STOOD BY THE ADDITION OF RS.13.00 LAKHS MADE IN RESPECT OF INVESTMENT MADE I N PTP NAGAR PROPERTY. 13. THE NEXT ISSUE RELATES TO THE ADDITION OF R S.6.00 LAKHS RELATING TO THE INVESTMENT MADE IN PURCHASE OF BENZ CAR. IN THE REMAND REPORT , THE AO STOOD BY THE ADDITION MADE BY STATING THAT THE ASSESSEE COULD NOT EXPLAIN THE SOURCES FOR PURCHASING THE CAR. 14. THE NEXT RELATES TO THE ADDITION PERTAINING TO BANK DEPOSITS. THE FACTS RELATING THERETO ARE STATED IN BRIEF. THE AO ASKED THE ASSE SSEE TO EXPLAIN THE FOLLOWING HIGH VALUE TRANSACTIONS NOTICED IN THE BANK ACCOUNT OF T HE ASSESSEE. 17.11.2001 - 24,45,376 04-09-2001 - 5,50,000 12-07-2001 - 5,50,000 ---------------- TOTAL 35,45,376 ========= BEFORE AO, THE ASSESSEE STATED THAT THE DEPOSITS WE RE MADE OUT OF FUNDS RECEIVED FROM SHRI A.R. SHAJAHAN. HOWEVER, BEFORE LD CIT(A), THE ASSESSEE LISTED OUT THE FOLLOWING SOURCES ALSO:- CASH AVAILABLE ON SALE OF PTP NAGAR PROPERTY 21.0 0 LAKHS PROFIT ON SALE OF CAR 1.00 LAKH INCOME RETURNED 2.58 LAKHS LOAN FROM A.R SHAJAHAN 20.50 LAKHS I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 8 LOAN FROM R.SURENDRAN ADOOR 6.00 LAKHS ------------------ TOTAL 51.08 LAKHS ========= THE ASSESSING OFFICER, IN HIS REMAND REPORT, REJECT ED THE CLAIM OF AVAILABILITY OF CASH OF RS.21.00 LAKHS ON SALE OF PTP NAGAR PROPERTY AND AL SO THE CLAIM OF RECEIPT OF LOAN FROM SHRI R. SURENDRAN, FOR WANT OF CONFIRMATION LETTERS FROM THE BUYERS OF PROPERTY AND ALSO FROM SHRI R. SURENDRAN. WITH REGARD TO THE CLAIM O F LOAN OF RS.20.50 LAKHS FROM SHRI A.R SHAJAHAN, THE AO STOOD BY HIS OBSERVATIONS THAT THE ASSESSEE COULD NOT ESTABLISH NEXUS BETWEEN THE FINANCIAL TRANSACTIONS OF SHRI SH AJAHAN AND HIS BANK ACCOUNT. HENCE, THE AO SUBMITTED IN THE REMAND REPORT THAT T HE ASSESSEE HAS FAILED TO FURNISH THE SOURCES FOR MAKING THE DEPOSIT OF RS.35.45 LAKH S. 15. THE LD CIT(A) CONFRONTED THE REMAND REPORT WITH THE ASSESSEE. IN RESPONSE THERETO, THE ASSESSEE SUBMITTED HE HAD GIVEN EXPLAN ATIONS BEFORE THE ASSESSING OFFICER OUT OF HIS FEEBLE MEMORY AND THEY ARE NOT BASED UPO N ANY BOOKS OF ACCOUNT OR DIARY NOTING OR ANY OTHER DOCUMENT. ACCORDINGLY, IT WAS SUBMITTED THAT THE POSSIBILITY OF MISTAKES IN THE SAID EXPLANATION CANNOT BE RULED OU T. IT WAS FURTHER SUBMITTED THAT (A) THE STATEMENT OF ACCOUNTS GIVEN BY M/S S.I. PR OPERTY CLEARLY SHOW THAT THE THEY HAVE CARRIED THE TRANSACTIONS WITH SHRI M.M.SU LAIMAN ONLY, I.E., THE ASSESSEE HEREIN. ACCORDINGLY, IT WAS SUBMITTED THAT HE ONLY CARRIED THE TRANSACTIONS WITH M/S S.I. PROPERTY ON BEHALF OF SHRI SHAJAHAN. ACCORDINGLY, IT WAS SUBMITTED THAT HE ONLY RECEIVED THE REFUND AMOUNT OF RS.10.50 LAKHS FROM M /S S.I. PROPERTY. (B) WITH REGARD TO THE BANK DEPOSITS, HE SUBMITTE D THAT THEY REPRESENT REAL ESTATE AND VEHICLE BROKERAGE TRANSACTIONS. IT WAS SUBMITTED THAT HE USED TO IDENTIFY BIGGER PLOTS, THEN CONVERT IT INTO FEW SMALLER PLOT S AND SELL THEM TO DIFFERENT PERSONS. THE MONEY TRANSACTIONS CARRIED OUT IN THOSE DEALS W ERE ROUTED THROUGH THE BANKS. (C) IN THE IMMEDIATELY PRECEDING YEAR, HIS WIFE HAD GIVEN AN ADVANCE OF RS.4.50 LAKHS TO MARY MATHEW AND OTHERS IN CONNECTI ON WITH A LAND DEAL. IT WAS SUBMITTED THAT THE SAID AMOUNT WAS RETURNED BACK DU RING THIS YEAR, SINCE THE TRANSACTION DID NOT FRUCTIFY AND HENCE THE SAME WAS AVAILABLE WITH HIM A SOURCE. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 9 (D) IN THE BANK DEPOSITS LISTED OUT BY THE AO, TH E ASSESSEE POINTED OUT THAT A SUM OF RS.5.50 LAKHS REPRESENT TRANSFER OF FUNDS FR OM SOME OTHER BANK ACCOUNT AND ANOTHER DEPOSIT OF RS.5.50 LAKHS REPRESENT FUNDS WI THDRAWN FROM THE VERY SAME BANK ACCOUNT IN THE IMMEDIATELY PRECEDING DAYS. (E) THE ASSESSEE ALSO CONTENDED THAT THE EVIDENCE S COLLECTED BY THE ASSESSING OFFICER DURING REMAND PROCEEDINGS WERE NOT PUT TO T HE ASSESSEE. 16. THE LD CIT(A) EXAMINED ALL THE ISSUES AND DECI DED AS UNDER:- (A) IN RESPECT OF INVESTMENT IN PTP NAGAR PROPER TY, THE LD CIT(A) REJECTED THE CLAIM OF RECEIPT OF LOAN OF RS.10.00 L AKHS FROM SHRI A.R. SHAJAHAN, AS HE HAD STATED IN THE CONFIRMATION LETTER THAT THE LOAN WAS GIVEN TO THE WIFE OF THE ASSESSEE. HOWEVER, THE LD CIT(A) AGREED WITH THE A SSESSEE THAT THE AMOUNT OF RS.10.50 LAKHS REFUNDED BY M/S S.I. PROPERTY WAS AV AILABLE WITH THE ASSESSEE AND IT WAS USED IN THE PURCHASE OF PTP NAGAR PROPERTY. ACCORD INGLY, THE LD CIT(A) ALLOWED SET OFF OF THE SAME AGAINST THE ADDITION OF RS.13.00 LAKHS AND SUSTAINED THE BALANCE ADDITION OF RS.1.50 LAKHS (SIC. THE BALANCE AMOUNT IS RS.2.5 0 LAKHS AND NOT RS.1.50 LAKHS AS SUSTAINED BY LD CIT(A). (B) THE LD CIT(A) DELETED THE ADDITION OF RS.6.00 LAKHS RELATING TO THE INVESTMENT IN PURCHASE OF BENZ CAR ON THE REASONING THAT THE REVENUE DID NOT UNEARTH ANY MATERIAL TO SHOW THAT THE ASSESSEE HAD PURCHASE D THE VEHICLE DURING THIS YEAR. (C) IN THE REMAND REPORT, THE AO HAD STAT ED THAT THE INVESTMENT MADE IN THE PURCHASE OF CASHEW FACTORY AMOUNTING TO RS.1,43 ,000/- CAN BE TREATED AS INVESTED OUT OF THE INCOME DECLARED BY THE ASSESSEE DURING T HIS YEAR. HENCE, BY GIVING TELESCOPING BENEFIT, THE LD CIT(A) DELETED THIS ADD ITION. (D) WITH REGARD TO THE BANK DEPOSITS ADDIT ION OF RS.35,45,376/-, THE LD CIT(A) ACCEPTED THE EXPLANATION GIVEN BY THE ASSESS EE WITH REGARD TO THE TWO DEPOSITS OF RS.5.50 LAKHS EACH AND ACCORDINGLY DELETED RS.11 .00 LAKHS. FROM THE REMAINING AMOUNT OF RS.24,45,376/-, THE LD CIT(A) ALLOWED FOL LOWING DEDUCTIONS:- (I) BALANCE AMOUNT AVAILABLE OUT OF INCOME RETUR NED BY THE ASSESSEE RS.1.15 LAKHS, I.E. (INCOME RETURNED RS.2.58 LAKHS LESS INVESTMENT IN CASHEW FACTORY RS.1.43 LAKHS) I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 10 (II) ADDITIONAL INCOME OFFERED IN SEC. 153A RETU RN RS.3.00 LAKHS. ACCORDINGLY, THE LD CIT(A) CONFIRMED THE ADDITION O F BALANCE AMOUNT OF RS.20,30,376/-. IT IS PERTINENT TO NOTE THAT THE LD CIT(A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE THAT THE SAID DEPOSITS ALSO CONSISTS OF SALE CONSID ERATION RECEIVED FROM FOUR PERSONS TO WHOM THE PTP NAGAR PROPERTY WAS SOLD, SINCE THE ASS ESSEE COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF THE SAID CONTENTIONS. 17. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE DID NOT PRODUCE ANY CASH FLOW STATEMENT TO EXPLAIN THE SOURCES AND INVESTMENTS. IN THIS REGARD, THE ASSESSEE HAS ADMI TTED THAT HE DID NOT MAINTAIN REGULAR BOOKS OF ACCOUNTS OR DIARY OR ANY OTHER DOCUMENT AN D ACCORDINGLY HE HAS SUBMITTED THAT HE WAS CONSTRAINED TO EXPLAIN THE SOURCES OUT OF HIS MEMORY. THE FACTS WHICH HAVE BEEN ACCEPTED BY THE DEPARTMENT ARE THAT THE A SSESSEE IS A REAL ESTATE BROKER AND IS ALSO ENGAGED IN PURCHASE AND SALE OF CARS. THE MODUS OPERANDI OF THE ASSESSEE IN THE REAL ESTATE TRANSACTIONS IS THAT HE WOULD ACQUI RE LARGE SIZED PLOT BY ENTERING INTO AN AGREEMENT WITH THE SELLERS AND CONVERT THE SAME INT O SMALL SIZED ONES BY MAKING DIVISION/PARTITION. THEREAFTER, HE WOULD IDENTIFY THE PROSPECTIVE BUYERS AND MAKE THE SELLER OF PLOT TO REGISTER THE SAME DIRECTLY IN THE NAME OF THE BUYERS. THE MODUS OPERANDI OF THE ASSESSEE, DISCUSSED ABOVE, HAS NOT BEEN REJECTED BY THE REVENUE. 18. ACCORDING TO THE ASSESSEE, THE BANK TRANSAC TIONS REPRESENT THE ACTIVITIES CARRIED ON BY HIM IN REAL ESTATE AND VEHICLE BUSINESS. THE ASSESSEE HAS FURTHER SUBMITTED THE FUNDS RECEIVED BY HIM FROM OUT OF THE LOAN OBTAINED FROM SHRI A.R. SHAJAHAN, REFUND RECEIVED FROM M/S S.I. PROPERTY ON BEHALF OF SHRI S HAJAHAN, THE REFUND OF MONEY OF RS.4.50 LAKHS ADVANCED TO MARY MATHEW IN THE IMMEDI ATELY PRECEDING YEAR, INCOME DECLARED DURING THE YEAR UNDER CONSIDERATION, SALE PROCEEDS OF PTP NAGAR PROPERTY ETC. WERE UTILISED FOR MAKING DEPOSITS INTO THE BANK. T HOUGH THE AO AND LD CIT(A) HAVE NOT ACCEPTED THE CLAIM OF AVAILABILITY OF CERTAIN S OURCES FOR WANT OF SUPPORTING EVIDENCES, YET THE FACT REMAINS THAT THE ASSESSEE D ID NOT MAINTAIN BOOKS OF ACCOUNT AND HENCE, IN OUR VIEW, THE EXPLANATIONS GIVEN BY T HE ASSESSEE HAS TO BE TESTED ON THE BASIS OF AVAILABLE EVIDENCES AND SURROUNDING CIRCUM STANCES AND ALSO BY DULY I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 11 CONSIDERING THE HUMAN CONDUCT AND HUMAN PROBABILITI ES, SINCE THE OBJECT OF THE INCOME TAX ACT IS TO ASSESS THE INCOME IN A JUDICIOUS MANN ER. 19. WE SHALL FIRST CONSIDER THE ADDITION OF RS. 6.00 LAKHS RELATING TO THE INVESTMENT MADE IN PURCHASE OF BENZ CAR. IT WAS NOTICED BY TH E AO THAT THE ASSESSEE HAS SOLD HIS BENZ CAR TO THE SELLERS OF PTP NAGAR PROPERTY FOR A SUM OF RS.6.00 LAKHS AND ADJUSTED THE SAME AGAINST THE CONSIDERATION, I.E., OUT OF TH E CONSIDERATION OF RS.19.00 LAKHS, THE ASSESSEE PAID RS.13.00 LAKHS IN CASH AND THE REMAIN ING AMOUNT OF RS.6.00 LAKHS WAS ADJUSTED AGAINST THE VALUE OF BENZ CAR. HENCE, THE AO ASSESSED THE INVESTMENT MADE IN PURCHASE OF PTP NAGAR PROPERTY AT RS.13.00 LAKHS AND ASSESSED THE INVESTMENT MADE IN PURCHASE OF BENZ CAR AT RS.6.00 LAKHS. 19.1 THE LD CIT(A) NOTICED THAT THE DEPARTMENT D ID NOT UNEARTH ANY EVIDENCE TO PROVE THAT THE BENZ CAR WAS PURCHASED DURING THE YE AR UNDER CONSIDERATION. THE AO ALSO DID NOT BRING ANY MATERIAL ON RECORD TO SHOW T HAT THE CAR WAS PURCHASED DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03. THE LD CIT(A) ACCORDINGLY HAS EXPRESSED THE VIEW THAT THE IMPUGNED ADDITION OF RS .6.00 LAKHS HAS BEEN MADE WITHOUT BRINGING ANY INCRIMINATING MATERIAL ON RECORD. THE LD CIT(A) ALSO OBSERVED THAT THE EXPLANATION OF THE ASSESSEE THAT THE CAR WAS PURCHA SED BY HIM IN THE EARLIER YEARS OUT OF HIS KNOWN SOURCES OF INCOME WAS NOT REBUTTED BY THE AO. UNDER THESE CIRCUMSTANCES, THE LD CIT(A) HELD THAT THERE IS NO REASON TO UPHOLD THE ADDITION OF RS.6.00 LAKHS. 19.2 THE REVENUE IS ASSAILING THIS DECISION OF LD CIT(A). HOWEVER, WE NOTICE THAT THE IMPUGNED ASSESSMENT YEAR 2002-03 FALLS IN THE C ATEGORY OF CONCLUDED ASSESSMENT, SINCE IT WAS NOT PENDING ON THE DATE OF SEARCH. UN DER SEC.153A OF THE ACT, ONLY PENDING ASSESSMENTS ABATE AND THE CONCLUDED ASSESSM ENTS DO NOT ABATE, MEANING THEREBY, THE CONCLUDED ASSESSMENTS CAN BE DISTURBED ONLY ON THE BASIS OF INCRIMINATING MATERIALS FOUND DURING THE COURSE OF SEARCH. ADMIT TEDLY, THE DEPARTMENT DID NOT UNEARTH ANY MATERIAL TO SHOW THAT THE CAR WAS PURCH ASED DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03. THE AO ALSO DOES NOT HAVE ANY OTHER MATERIAL TO I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 12 SUPPORT HIS VIEW. UNDER THESE CIRCUMSTANCES, WE AG REE WITH THE VIEW TAKEN BY LD CIT(A) THAT THE ASSESSING OFFICER HAS ONLY ASSUMED THAT THE CAR WAS PURCHASED DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03. IN THE ABSENCE OF ANY CREDIBLE EVIDENCE TO SHOW THE DATE OF PURCHASE OF CAR, IN OU R VIEW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.6.00 LAKHS, REFERRED SU PRA. 20. THE NEXT ADDITION RELATES TO THE INVESTMENT MADE IN THE PURCHASE OF PTP NAGAR PROPERTY. AS STATED EARLIER, THE ASSESSING OFFICER HAS ADDED A SUM OF RS.13.00 LAKHS AS UNEXPLAINED INVESTMENT. THE LD CIT(A) GAVE SET OFF OF RS.10.50 LAKHS, BEING THE AMOUNT RECEIVED FROM M/S S.I. PROPERTY, AND CONFIRM ED THE BALANCE AMOUNT OF RS.1.50 LAKHS. THE REVENUE IS CHALLENGING THE RELIEF GRANT ED BY LD CIT(A) AND THE ASSESSEE IS AGGRIEVED AGAINST THE ADDITION SUSTAINED. 20.1 IN THE REMAND REPORT, THE AO REJECTED THE CLAIM OF AVAILABILITY OF THE AMOUNT REFUNDED BY M/S S.I. PROPERTY ON THE GROUND THAT TH ERE IS NO EVIDENCE TO SHOW THE NEXUS BETWEEN THE TRANSACTIONS ENTERED BY SHRI SHAJ AHAN AND THE BANK ACCOUNTS OF THE ASSESSEE. THERE IS NO DISPUTE WITH THE FACT THAT S HRI SHAJAHAN HAD DEPOSITED RS.25.00 LAKH WITH M/S S.I. PROPERTY AND THE SAID CONCERN RE TURNED BACK RS.10.50 LAKHS AFTER ADJUSTING THE REMAINING AMOUNT TOWARDS THE COST OF A FLAT. THE ASSESSEE HAS POINTED OUT THAT THE CONCERN M/S S.I. PROPERTY HAS CLEARLY STATED IN THE CONFIRMATION LETTER THAT THE FINANCIAL TRANSACTIONS WERE ENTERED WITH SHRI M .M. SULAIMAN, BEING THE ASSESSEE HEREIN, MEANING THEREBY, THE ASSESSEE HEREIN WAS CA RRYING OUT THE RELEVANT FINANCIAL TRANSACTIONS ON BEHALF OF SHRI SHAJAHAN. BASED ON THESE FACTS, THE LD CIT(A) HELD THAT THE ASSESSEE COULD HAVE RECEIVED THE ABOVE SAID AMO UNT OF RS.10.50 LAKHS AND ACCORDINGLY ALLOWED SET OFF OF THE SAME AGAINST THE ADDITION OF RS.13.00 LAKHS, REFERRED ABOVE. 20.2 WE NOTICE THAT THE ASSESSING OFFICER HAS R EJECTED THE CLAIM OF THE ASSESSEE ONLY FOR THE REASON THAT THE ASSESSEE COULD NOT SHOW THE NEXUS BETWEEN THE AMOUNT REFUNDED BY M/S S.I. PROPERTY AND THE BANK ENTRIES. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE DID NOT MAINTAIN PROPER BOOKS OF ACCOUNT. FURTHER THE ASSESSEE WAS ACTING AS I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 13 MIDDLE MAN IN THE REAL ESTATE AND VEHICLE TRANSACTI ONS. IT CANNOT BE DENIED THAT THE ASSESSEE WOULD BE CONSTRAINED TO HANDLE THE MONEY T RANSACTIONS OF BOTH THE BUYERS AND SELLERS. THE AO HAS ALSO ACCEPTED THE FACT THA T THE BANK ACCOUNTS OF THE ASSESSEE SHOW HUGE MONEY TRANSACTIONS. IT IS ALSO A FACT TH AT THE RELATIONSHIP OF THE ASSESSEE WITH BOTH THE BUYERS AND SELLERS WOULD COME TO AN E ND AFTER THE COMPLETION OF THE PURCHASE/SALE TRANSACTION. UNDER THESE CIRCUMSTANC ES, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT HE WAS CONSTRAINED TO EXPLAIN THE TRANSACTIONS OUT OF HIS FEEBLE MEMORY AND HENCE HE WAS NOT ABLE TO POINT OUT OR EX PLAIN EACH AND EVERY TRANSACTION IN THE BANK ACCOUNTS. IN THAT SCENARIO, AS STATED EARLIER, ONE IS REQUIRED TO EXAMINE THE EXPLANATIONS GIVEN BY THE ASSESSEE ON THE BASIS OF SURROUNDING CIRCUMSTANCES, HUMAN CONDUCT AND HUMAN PROBABILITIES. IN THE INSTANT C ASE, THE UNDISPUTED FACT IS THAT THE ASSESSEE HEREIN HAS CARRIED OUT FINANCIAL TRANSACTI ONS WITH M/S S.I. PROPERTY ON BEHALF OF SHRI SHAJAHAN. FURTHER THE CERTIFICATE GIVEN BY THE ABOVE SAID CONCERN ALSO CONFIRMS THAT A SUM OF RS.10.50 LAKHS WAS REFUNDED BY THEM. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THERE IS NO REASON TO DISBELIEVE THE CONTENTI ON OF THE ASSESSEE THAT THE AMOUNT OF RS.10.50 LAKHS REFUNDED BY THE ABOVE SAID CONCERN W AS AVAILABLE WITH HIM AND USED BY HIM. ACCORDINGLY, WE UPHOLD THE VIEW OF LD CIT(A) ON THIS ISSUE. 20.3 WHILE CONFIRMING THE ADDITION OF RS.1.50 L AKHS, WE NOTICE THAT THE LD CIT(A) DID NOT EXAMINE THE SUBMISSION OF THE ASSESSEE THAT THE ADVANCE OF RS.4.50 LAKHS GIVEN TO SMT. MARY MATHEW IN THE YEARS RELEVANT TO THE ASSES SMENT YEARS 2000-01 AND 2001-02 WAS RECEIVED BACK AND THE SAME WAS USED FOR HIS BUS INESS TRANSACTIONS. IN THE IMMEDIATELY PRECEDING YEAR, I.E., IN ASSESSMENT YEA R 2001-02, THE AMOUNT OF RS.4.50 LAKHS GIVEN TO SMT. MARY MATHEW WAS CONSIDERED IN D ETAIL BY THE TAX AUTHORITIES AS WELL AS BY US. HENCE, THERE IS NO DISPUTE WITH REGARD T O THE FACT THAT A SUM OF RS.4.50 LAKHS WAS GIVEN TO SMT. MARY MATHEW BY THE WIFE OF THE AS SESSEE. ACCORDING TO THE ASSESSEE, THE PURCHASE TRANSACTION COULD NOT BE FIN ALIZED AND HENCE SMT. MARY MATHEW HAS RETURNED THE ADVANCE AMOUNT, REFERRED ABOVE. D URING THE COURSE OF SEARCH, THE DEPARTMENT DID NOT UNEARTH ANY EVIDENCE TO CONTRADI CT THE SAID SUBMISSIONS, I.E., NO EVIDENCE WAS SEIZED TO SHOW THAT THE TRANSACTION WI TH SMT. MARY MATHEW WAS CONCLUDED. HENCE, IN OUR VIEW, THERE IS NO REASON TO REJECT THE CLAIM OF THE ASSESSEE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 14 THAT THE AMOUNT OF RS.4.50 LAKHS REFUNDED BY SMT. M ARY MATHEW WAS AVAILABLE WITH HIM. HENCE, THE POSSIBILITY OF ASSESSEE USING THE SAME FOR MAKING PAYMENT OF BALANCE AMOUNT OF RS.1.50 LAKHS, IN OUR VIEW, CANNOT BE RUL ED OUT. THE ASSESSEE HAS ALSO SUBMITTED IN THE GROUNDS OF APPEAL THAT HE HAD RECE IVED A SUM OF RS.2.00 LAKHS FROM SHAJAHAN, WHICH WAS ALSO AVAILABLE WITH THE ASSESSE E. UNDER THESE SET OF FACTS, IN OUR VIEW, THERE IS NO NECESSITY TO CONFIRM THE ADDITION TO THE EXTENT OF RS.1.50 LAKHS ALSO. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) ON TH IS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ENTIRE ADDITION OF RS.13.00 L AKHS RELATING TO PTP NAGAR PROPERTY. 21. THE NEXT ADDITION RELATES TO UNEXPLAINED BA NK DEPOSITS. FROM THE BANK ACCOUNT OF THE ASSESSEE, THE AO PICKED UP THREE CASH DEPOSI TS AGGREGATING TO RS.35.45 LAKHS AND ASKED THE ASSESSEE TO EXPLAIN THE SAME. SINCE THE EXPLANATIONS GIVEN BY THE ASSESSEE WERE NOT CONVINCING, HE ASSESSED THE ABOVE SAID AMOUNT AS INCOME OF THE ASSESSEE. THE LD CIT(A) ACCEPTED THE EXPLANATIONS GIVEN FOR AN AMOUNT OF RS.11.00 LAKHS AND ACCORDINGLY DELETED THE SAME. THE DEPART MENT HAS ALSO ACCEPTED THE DECISION OF LD CIT(A) WITH REGARD TO RS.11.00 LAKHS . THE LD CIT(A) ALSO GAVE SET OFF OF ADDITION INCOME OF RS.3.00 LAKHS OFFERED BY THE ASS ESSEE FOR THIS YEAR DURING THE COURSE OF SEARCH. THE REVENUE IS CONTESTING THE SAID DECI SION ON THE REASONING THAT THE SAME AMOUNT WAS TELESCOPED WITH THE INVESTMENT MADE IN P URCHASE OF CASHEW FACTORY. 22. IN THE REGULAR RETURN OF INCOME, THE ASSESS EE HAD DECLARED RS.2.58 LAKHS AS HIS INCOME. IN THE RETURN FILED SUBSEQUENT TO THE SEAR CH, THE ASSESSEE HAS DECLARED ADDITIONAL INCOME OF RS.3.00 LAKHS. WE HAVE ALREAD Y NOTICED THAT THE LD CIT(A) HAS TELESCOPED THE INVESTMENT OF RS.1.43 LAKHS AGAINST THE INCOME OF RS.2.58 LAKHS DECLARED IN THE REGULAR RETURN OF INCOME. HENCE, TH E CONTENTION OF THE REVENUE IN THIS REGARD IS NOT CORRECT VIS--VIS THE FACTS AVAILABLE ON RECORD. IT WAS NOT THE CASE OF THE REVENUE THAT THE ADDITIONAL INCOME OF RS.3.00 LAKHS WAS USED FOR SOME OTHER PURPOSE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE DE CISION OF LD CIT(A) IN ALLOWING SET OFF OF RS.3.00 LAKHS AGAINST THE BANK DEPOSITS. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 15 23. THE LD CIT(A) HAS HELD THAT THE BANK DEPOSIT T O THE TUNE OF RS.20,30,376/- STANDS UNEXPLAINED. THE LD CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE THAT THE SALE PROCEEDS RECEIVED ON SALE OF PTP NAGAR PROPERTY WAS USED TO MAKE DEPOSITS, FOR WANT OF EVIDENCES. THE FACT REMAINS THAT THE ASSESSEE I S A REAL ESTATE BROKER. THE FACT THAT THE ASSESSEE HAS PURCHASED PTP NAGAR PROPERTY IS AL SO NOT IN DISPUTE. ACCORDING TO THE ASSESSEE, HE HAS CONVERTED THE PTP NAGAR PLOT INTO FOUR SMALL SIZED PLOTS AND SOLD THEM TO FOUR PERSONS, VIZ., M/S PARAMESWARAN, SUNDAREE S UNDARAM, SARATH AND DR. MAHEEN. IT WAS SUBMITTED THAT THE ORIGINAL HOLDERS OF THE P TP NAGAR PLOT HAS DIRECTLY EXECUTED THE SALE DEEDS IN FAVOUR OF THE FOUR PERSONS MENTIO NED ABOVE. THUS, IF ONE LOOKS AT THE CONVEYANCE DEEDS, THE EXISTENCE OF THE ASSESSEE AS AN INTERMEDIARY WILL NOT BE KNOWN. SINCE THE ASSESSEE HAS ACTED AS AN INTERMEDIARY IN THE TRANSACTIONS, NORMALLY HIS RELATIONSHIP WITH THE BUYERS/SELLERS OF THE PROPERT Y WOULD NOT CONTINUE AFTER THE CONCLUSION OF RELEVANT TRANSACTION. HENCE, IT WOUL D BE NORMALLY DIFFICULT FOR HIM TO OBTAIN THE INFORMATION, AS SOUGHT BY THE AO. ON TH E CONTRARY, IT WOULD BE EASY FOR THE AO TO ELICIT THE REQUIRED INFORMATION BY SUMMONING THEM, WHICH WAS NOT DONE BY HIM. ACCORDING TO THE ASSESSEE, THE ASSESSING OFFICER HA S ASKED HIM TO FURNISH THE DETAILS OF SALE TRANSACTION ONLY AND HE DID NOT ASK FOR CONFIR MATION LETTERS. ACCORDINGLY, IT WAS SUBMITTED THAT THERE WAS NO OCCASION FOR THE ASSESS EE TO OBTAIN CONFIRMATION LETTERS FROM THE BUYERS OF THE PROPERTY. THE ASSESSEE HAS ALSO SUBMITTED THAT ONE OF THE PURCHASERS NAMED SHRI SARATH IS WORKING IN INCOME T AX DEPARTMENT. HOWEVER, IT IS SEEN THAT THE AO DID NOT MAKE ANY ATTEMPT TO ELICIT INFORMATION FROM SHRI SARATH ALSO. ONCE THE REVENUE HAS ACCEPTED THE PURCHASE OF PTP N AGAR PROPERTY, WE FIND NO REASON AS TO WHY THEY SHOULD NOT ACCEPT THE CLAIM OF SALE OF THE SAME, WHEN THE VALUE OF SALE TRANSACTIONS WAS CLAIMED AS RS.21.00 LAKHS. SINCE THE ASSESSEE HAS PURCHASED THE PTP NAGAR PROPERTY FOR RS.19.00 LAKHS, THE POSSIBILITY OF SELLING THE SAME FOR RS.21.00 LAKHS CANNOT BE RULED OUT. WE ALSO NOTICE THAT THE ASSE SSING OFFICER, IN THE REMAND REPORT SUBMITTED FOR THE IMMEDIATELY SUCCEEDING YEAR, I.E. ASSESSMENT YEAR 2003-04, HAS ACCEPTED THE SUBMISSION OF THE ASSESSEE THAT THE BA NK DEPOSITS REPRESENTED ADVANCES RECEIVED FROM VARIOUS PERSONS IN RESPECT OF HIS REA L ESTATE BUSINESS, THE LOANS AVAILED BY HIM AND COMMISSION RECEIVED. UNDER THESE CIRCUM STANCES, WE FIND NO REASON AS TO WHY THE AO COULD NOT ACCEPT THE VERY SAME EXPLANATI ON FOR THIS YEAR ALSO. IN VIEW OF I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 16 THE FOREGOING DISCUSSIONS, WE DO NOT FIND ANY JUSTI FICATION IN CONFIRMING THE ADDITIONS RELATING TO BANK DEPOSITS TO THE TUNE OF RS.20,30,3 76/-. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASS ESSING OFFICER TO DELETE THE ENTIRE ADDITION OF RS.35.45 LAKHS RELATING TO THE BANK DEP OSITS. 24. THE REVENUE IS ALSO CONTESTING THE RELIEF G RANTED IN RESPECT OF PURCHASE OF CASHEW FACTORY FOR A SUM OF RS.1.43 LAKHS. WE NOTI CE THAT THE LD CIT(A) HAS GIVEN A CLEAR FINDING THAT THE INCOME DECLARED BY THE ASSES SEE FOR THIS YEAR WAS FAR MORE THAN THE ABOVE SAID INVESTMENT AND ACCORDINGLY DELETED T HE ADDITION OF RS.1.43 LAKHS, REFERRED ABOVE. BEFORE US, THE REVENUE DID NOT FIL E ANY MATERIAL TO CONTRADICT THE SAID FINDINGS GIVEN BY LD CIT(A). ACCORDINGLY, WE CONFI RM HIS ORDER ON THIS ISSUE. 25. WE SHALL TAKE UP THE APPEALS FILED BOTH THE PARTIES FOR THE ASSESSMENT YEAR 2003- 04. IN THIS YEAR BOTH THE PARTIES ARE ASSAILING TH E DECISION RENDERED THE LD. CIT(A) ON THE ISSUE RELATING TO DETERMINATION OF UNDISCLOSED INCOME FROM SALE OF ANAKULAM ESTATE. THE FACTS RELATING THERETO ARE STATED IN BRIEF. TH E SEIZED DOCUMENTS REVEALED THAT THE ASSESSEE HAD PAID AN ADVANCE OF RS. 25.00 LAKHS AS PER SALE AGREEMENT DATED 19-06- 2002 ENTERED BY THE ASSESSEE FOR PURCHASE OF ANAKUL AM ESTATE HAVING AN EXTENT OF 101.50 ACRES. IT WAS PROPOSED TO BE PURCHASED AT T HE RATE OF RS. 67,000/- PER ACRE. THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE FOR PA YMENT OF THE ADVANCE OF RS. 25.00 LAKHS. THE ASSESSEE SUBMITTED THAT HE RECEIVED A S UM OF RS.24.00 LAKHS FROM A PERSON NAMED SHRI ABDUL KALAM, THALHANI TEXTILES, ATTINGAL AND USED HIS OWN FUNDS TO THE EXTENT OF RS. 1.00 LAKH BOTH AGGREGATING TO RS. 25. 00 LAKHS TO PAY THE ADVANCE, REFERRED ABOVE. 25.1 IN THIS REGARD, THE ASSESSING OFFICER EXAMINED SHRI ABDUL KALAM, REFERED ABOVE, BY ISSUING SUMMONS U/S. 131 OF THE ACT AND A SWORN STATEMENT WAS ALSO RECORDED FROM HIM ON 29-12-2008. IT IS TO BE NOTICED THAT THE AO DID NOT MAKE ANY ADDITION IN RESPECT OF THE ADVANCE PAYMENT OF RS. 25.00 LAKHS R EFERRED ABOVE. BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT HE E ARNED A COMMISSION OF 2% IN THE TRANSACTION RELATING TO THE PURCHASE AND SALE OF AN AKULAM ESTATE. IN THE RETURN FILED I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 17 AFTER THE SEARCH, THE ASSESSEE HAD ADMITTED ADDITIO NAL INCOME OF RS.8.00 LAKHS AND THE ASSESSEE SUBMITTED THAT THE SAID AMOUNT INCLUDES CO MMISSION EARNED ON SALE OF ANAKULAM ESTATE ALSO. 25.2 HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THAT HE RECEIVED ONLY COMMISSION INCOME FROM SALE OF ANAKUL AM ESTATE. BEFORE THE ASSESSING OFFICER, THE ASSESSEE FILED DETAILS OF SALE OF ANAK ULAM ESTATE TO VARIOUS PERSONS, AS PER WHICH A SUM OF RS.48,66,120/- WAS SHOWN AS REALISED ON THE SALE OF 71.22 ACRES. THE ASSESSING OFFICER DID NOT ACCEPT THE SALES AMOUNT A LSO THAT WAS REPORTED BY THE ASSESSEE. ACCORDINGLY, THE AO PROCEEDED TO ESTIMAT E THE SALES AMOUNT REALISED ON SALE OF ANAKULAM ESTATE. THE ASSESSING OFFICER NOTICED T HAT THE ASSESSEE HAS FILED A LETTER FROM A PERSON NAMED SHRI NOUFAL WHO HAPPENED TO BE THE MANAGER OF SHRI ABDUL KALAM, REFERRED ABOVE, WHEREIN IT WAS STATED THAT H E HANDED OVER CERTAIN DEMAND DRAFTS FOR AN AGGREGATE AMOUNT OF RS. 85.00 LAKHS T O THE ASSESSEE HEREIN ON BEHALF OF SHRI ABDUL KALAM. THE ASSESSING OFFICER FURTHER NO TICED THAT THE ASSESSEE HAD SOLD 12 ACRES OF LAND AT ANAKULAM ESTATE TO A PERSON NAMED S HRI GEE VARGHESE VARGHESE FOR A CONSIDERATION OF RS.21.60 LAKHS. HENCE THE ASSESSI NG OFFICER COMPUTED THE TOTAL SALE CONSIDERATION ON SALE OF ANAKULAM ESTATE AT RS. 1.06 CRORES AS DETAILED BELOW: (A) DEMAND DRAFTS FROM ABDUL KALAM : R S. 85,00,000/- (B) SALE RECEIPT FROM GEEVARGHESE VARGHES E : RS. 21,60,000/- TOTAL: RS.1,06,60,000/- THE COST OF PURCHASE OF ANAKULAM ESTATE TO THE ASSES SEE WAS TAKEN AT RS.68,00,500/-, I.E., 101.50 ACRES AT THE RATE OF RS. 67,000/- PER ACRE. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE PROFIT REALIZED ON SALE OF ANA KULAM ESTATE AT RS. 38,59,500/- (10660000 (-) 6800500) AND ASSESSED THE SAME AS INC OME OF THE ASSESSEE. 25.3 BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED THAT HE WAS NOT GIVEN A FAIR OPPORTUNITY OF HEARING AND HENCE, THE LD. CIT(A) CA LLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. IN THE REMAND PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE DEMAND DRAFTS AGGREGATING TO RS. 85.00 LAKHS RECEIV ED BY THE ASSESSEE WAS IN RESPECT I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 18 OF ANOTHER ESTATE SOLD BY M/S THAMARAPALLI RUBBER C O. LTD AND NOT ANAKULAM ESTATE PROPERTY. THE REMAND OFFICER ALSO NOTICED THAT THE SAID DEMAND DRAFT PAYMENTS WERE MADE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSE SSMENT YEAR 2004-05 AND NOT IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. ACCO RDINGLY, THE ASSESSING OFFICER REPORTED IN THE REMAND REPORT THAT THE AMOUNT OF RS . 85.00 LAKHS SHOULD NOT BE CONSIDERED IN THIS YEAR. 25.4 THE ASSESSING OFFICER, IN THE REMAND PROCE EDINGS, NOTICED THAT THE ASSESSEE HAS REPORTED TO HAVE SOLD ONLY 83.22 ACRES AS DETAILED BELOW:- 71.22 ACRES AS PER LIST GIVEN TO AO - 48,66,1 20 12.00 ACRES SOLD TO GEEVARGHESE VARGHESE - 21,6 0,000 ---------------- 70,26,120 ========= THUS, ACCORDING TO THE ASSESSEE, 83.22 ACRES OF LAN D HAVE BEEN SOLD FOR AN AGGREGATE VALUE OF RS. 70.26 LAKHS. THE AO DEDUCTED THE PROP ORTIONATE COST FOR 83.22 ACRES (83.22 ACRES X RS.67,000/- PER ACRE) FROM THE SALE VALUE REPORTED BY THE ASSESSEE AND COMPUTED THE PROFIT AT RS.14.49 LAKHS. THE REMAND OFFICER ALSO DETERMINED THE PROFIT ON SALE OF ANAKULAM ESTATE IN ANOTHER METHOD. HE N OTICED THAT THE LAND WAS SOLD TO SHRI GEEVARGHESE VARGHESE @ RS.1,80,000/- PER ACRE. ACCORDINGLY, HE APPLIED THE SAID RATE TO THE ENTIRE EXTENT OF 83.22 ACRES AND DETERM INED THE SALES VALUE AT RS.149.79 LAKHS. THEREAFTER THE AO DEDUCTED THE COST OF 83.2 2 ACRES @ RS.67000/- PER ACRE AND ACCORDINGLY ARRIVED AT THE PROFIT AT RS.94.04 LAKHS . 25.5 THE ASSESSING OFFICER ALSO EXPRESSED THE VI EW THAT THE CLAIM OF RECEIPT OF RS.24.00 LAKHS FROM SHRI ABDUL KALAM FOR MAKING PAY MENT OF ADVANCE OF RS.25.00 LAKHS ALSO STANDS UNPROVED. ACCORDINGLY, THE AO SUGGESTE D TO THE LD CIT(A) FOR ENHANCEMENT OF INCOME. 26. IN REPLY TO THE REMAND REPORT, THE ASSESSEE S UBMITTED THAT THE ASSESSING OFFICER WAS NOT CORRECT IN ASSUMING THAT HE HAS SOLD ONLY 8 3.22 ACRES OF LAND AND THE REMAINING PORTION OF LAND IS AVAILABLE WITH HIM. T HE ASSESSEE SUBMITTED THAT ENTIRE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 19 EXTENT OF 101.50 ACRES WAS DIVIDED INTO SEVERAL PLO TS BY CREATING INTERNAL ROADS. IN VIEW OF THE SAME, IT WAS SUBMITTED THAT, THE SALEABLE AR EA OF THE ESTATE WAS REDUCED TO 83.22 ACRES AND REMAINING PORTION WAS CONVERTED INT O COMMON AREA CONSISTING OF INTERNAL ROADS. ACCORDINGLY, THE ASSESSEE SUBMITTE D THAT HE REALIZED ONLY 70.26 LAKHS ON SALE OF PROPERTY. AFTER DEDUCTING THE COST OF P ROPERTY OF RS.68.00 LAKHS, HE COULD MAKE A PROFIT OF RS.2.26 LAKHS. ACCORDINGLY, HE OB JECTED TO THE PROFIT DETERMINED BY THE ASSESSING OFFICER UNDER BOTH THE METHODS. WITH REG ARD TO THE SUGGESTION FOR ENHANCEMENT OF INCOME BY RS.24.00 LAKHS, THE ASSESS EE POINTED OUT THAT SHRI ABDUL KALAM, IN THE ANSWER TO Q. NO.5, HAD STATED THAT HE GAVE A SUM OF RS.34.00 LAKHS AS LOAN TO SHRI M.M. SULAIMAN, THE ASSESSEE HEREIN, UP TO 31.3.2003. ACCORDINGLY HE SUBMITTED THAT THE CLAIM OF RECEIPT OF RS.24.00 LAK HS FROM SHRI ABDUL KALAM FOR GIVING ADVANCE OF RS.25.00 LAKHS FOR PURCHASE OF ANAKULAM ESTATE STANDS PROVED BY THE STATEMENT GIVEN BY SHRI ABDUL KALAM. BY PLACING RE LIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. UNION TYRES (240 ITR 556)(DELHI), THE ASSESSEE ALSO CONTENDED THAT THE SUGGESTION MADE BY THE AO F OR ENHANCEMENT OF INCOME IS BEYOND THE JURISDICTION OF THE AO IN REMAND PROCEED INGS, AS HE CANNOT SUGGEST ANY ADDITION IN THE REMAND REPORT. ACCORDINGLY, HE SUBM ITTED THAT THERE IS NO NEED FOR ENHANCEMENT OF INCOME AS SUGGESTED BY THE AO. 27. THE LD CIT(A) EXAMINED THE ISSUE AND RENDER ED HIS DECISION AS UNDER:- 8.7 HAVING GONE THROUGH THE FACTS OF THE CASE REPO RTS AND SUBMISSIONS MADE BY THE ASSESSING OFFICER AND THE APPELLANT THE FACT S HAVE EMERGED CLEARLY AS UNDER: (A) THAT IN THE ASSESSMENT ORDER THE WHOLE BASIS OF WORKING THE CAPITAL GAIN OF RS. 3859500/- WAS WRONG AND WITHOUT CORRECT APPRECI ATION OF FACTS BECAUSE THE THEN ASSESSING OFFICER TOOK THE FIGURE OF RS. 8500000/- TOWARDS SALE OF ANAKULAM ESTATE AND FOR ASSESSMENT Y EAR 2003-04 WHEREAS, THE PAYMENTS WERE ACTUALLY MADE FOR THE SA LE OF THAMARAPALLI RUBBER COMPANY LTD. KOTTAYAM AND RELATE TO A.Y. 200 4-05. THE WAY ASSESSING OFFICER DEALT WITH THIS ISSUE IN THE ASSE SSMENT ORDER SPEAKS OF A VERY CASUAL MANNER WITH WHICH THE ENTIRE ISSUE WAS APPROACHED AND THE ADDITION WAS MADE WITHOUT PROPER VERIFICATION OF FA CTS FOR A.Y. 2003-04. HENCE THERE IS NO CAPITAL GAIN WORTH RS. 3859500/- TO THE APPELLANT FOR A.Y. 2003-04. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 20 (B) THE ACIT WHO SUBMITTED THE REMAND REPORT WORKS OUT CAPITAL GAIN FOR THIS YEAR AT RS. 14.49 LAKHS BASED ON RECORDS AND FACTS AND FIGURES AVAILABLE THEREON. HOWEVER, HAS FURTHER ASSUMED THAT ASSESSEE COULD HAVE REALIZED MORE PROFITS BY SELLING THE LAND @ 180000/- PER ACR E AS SOLD TO G. VARGHESE FOR 12 ACRES. BUT, THIS CALCULATION IS NOT BASED ON ANY SEIZED MATERIAL THAT ASSESSEE COULD HAVE SOLD THE ENTIRE L AND FOR RS. 180000/- PER ACRE AND COULD HAVE EARNED PROFIT OF RS. 94.04 LAKHS IN THE ENTIRE DEAL. (C) CHALLENGING THIS, THE APPELLANT HAS VEHEMENTLY STATED THAT NOTHING OTHER THAN THE SEIZED DOCUMENT SHOULD HAVE BEEN RELIED UP ON BY THE ASSESSING OFFICER AND THE ESTIMATION OF THE ASSESSING OFFICER IS BASED ON SUSPICION AND SURMISES. AS PER THE APPELLANT, BASED ON FACTS , FIGURES AND DOCUMENTS AND THE SUBMISSIONS MADE BEFORE THE ASSES SING OFFICER IT IS A CONFIRMED THING THAT THE TOTAL VALUE RELEASED ON SA LE STANDS AT RS. 7026120/- WHICH IS AS PER SEIZED DOCUMENTS. WHEN T HIS CONSIDERATION IS ADOPTED FOR WORKING OF CAPITAL GAIN, THE GAIN WOULD MERELY BE 2.26 LAKHS, BECAUSE THE COST OF LAND IS RS. 68 LAKHS FOR WHICH THERE IS NO CONTROVERSY. AS REGARDS THE SALE OF BALANCE LAND AS SUGGESTED BY ASSESSING OFFICER IN THE REMAND REPORT IT HAS BEEN SUBMITTED THAT THE BA LANCE AREA WAS UTILIZED IN GIVING INTERNAL ROADS ON DIVIDING THE E STATE INTO SMALL PIECES. HENCE IT IS ALSO CONTROVERTED BY THE APPELLANT THAT AS ON 31.03.2003 THERE WAS A BALANCE LAND WITH THE APPELLANT. (D) ON A CONSIDERATION OF FACTS AND DOCUMENTS AVAIL ABLE EITHER SEIZED OR OTHERWISE I AGREE WITH THE APPELLANT THAT THERE IS NO EVIDENCE AVAILABLE WITH THE DEPARTMENT THAT THE ASSESSEE COULD HAVE S OLD HIS ENTIRE LAND MEASURING 101.50 ACRES @ 180000/- PER ACRE. THE LAN D WHICH IS SOLD FOR RS. 180000/- PER ACRE TO SHRI G. VARGHESE IS SUPPOR TED BY DOCUMENTS, BUT OTHER DOCUMENTS SHOW THAT THE LAND SOLD TO SHRI ABD UL KALAM, ATTINKAL AND SHRI IQBAL OF NILAMEL WERE SOLD AS PER THE CONSIDER ATION REFLECTED IN THE DOCUMENTS, WHICH IS ALSO STATED IN PARA 6 OF THE RE MAND REPORT. HENCE ON THIS BASIS THE CAPITAL GAIN AS WORKED OUT BY THE AS SESSING OFFICER COMES TO RS. 14.49 LAKHS. AS REGARDS THE BALANCE AND THE AP PELLANTS SUBMISSIONS THAT THE ENTIRE BALANCE LAND WAS CONSUMED FOR PROVI DING INTERNAL ROADS AND OTHER SET BACKS, ETC. CAN ALSO NOT FULLY IGNORE D. BECAUSE IF A BIG ESTATE IS DIVIDED INTO VARIOUS PARTS AND SOLD TO MO RE THAN ONE PERSON, SOME LAND IS DEFINITELY WASTED IN PROVIDING INTERNA L ROADS AND OTHER FACILITY AREA, ETC. HENCE SOME PART OF THE BALANCE AREA IS DEFINITELY CONSUMED IN THIS. HOWEVER, THE APPELLANT HAD NOT BEEN ABLE TO GIVE ANY CLINCHING EVIDENCE FOR THE SAME. IT IS ONLY THE FACTS AND CI RCUMSTANCES OF THE PROPERTY IN QUESTION THAT SOME CONCESSION FOR CONSU MPTION OF THIS LAND COULD HAVE BEEN GIVEN. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 21 (E) CONSIDERING THAT THE APPELLANT HAD EARNED A PRO FIT OF RS. 14.49 LAKHS FROM THE SALE OF ENTIRE LAND, AN EXPENSE OF RS. 500000/- IS ALLOWED FOR CONSUMPTION OF LAND TOWARDS INTERNAL ROADS AND PROV IDING OTHER FACILITIES. HENCE REMAINING RS. 1000000/- ARE HELD TO BE THE GA IN OF THE APPELLANT FROM THIS TRANSACTION, REJECTING HIS PLEA THAT ONLY RS.2.26 LAKHS WERE EARNED FROM THE ENTIRE TRANSACTION AND ALSO REJECTI NG THE PLEA THAT HE HAD EARNED ONLY COMMISSION NOTHING ELSE OUT OF THE TRAN SACTION. ACCORDINGLY ADDITIONS SUSTAINED IN THIS ACCOUNT IS RS.10,00,000 /-. THUS, THE LD CIT(A) GRANTED PARTIAL RELIEF TO THE A SSESSEE BY CONFIRMING THE ADDITION TO THE EXTENT OF RS.10.00 LAKHS. THE REVENUE IS ASSAI LING THE RELIEF GRANTED BY LD CIT(A) AND THE ASSESSEE IS ASSAILING THE ADDITION SUSTAINE D BY HIM. 27.1 WITH REGARD TO THE PROPOSAL FOR ENHANCEMENT OF INCOME, THE LD CIT(A) HAS POINTED OUT THAT SHRI ABDUL KALAM HAS CONFIRMED THE PAYMENT OF RS.24.00 LAKHS TO THE ASSESSEE IN THE STATEMENT TAKEN FROM HIM ON 29.12.2 008. HE ALSO NOTICED THAT THE AO DID NOT MAKE ANY ADDITION IN VIEW OF THE CONFIRMATI ON GIVEN BY SHRI ABDUL KALAM. SINCE THE REVENUE DID NOT RAISE ANY GROUND ON THIS ISSUE BEFORE HIM, THE LD CIT(A) FELT THAT THERE IS NO JURISDICTION FOR HIM TO DISCUSS THE SAI D ISSUE. THE LD CIT(A) ALSO POINTED OUT THAT HE DID NOT REFER THIS ISSUE TO THE AO IN THE R EMAND PROCEEDING. ON MERITS, THE LD CIT(A) NOTICED THAT SHRI ABDUL KALAM HAS CONFIRMED PAYMENTS TO THE TUNE OF RS.34.00 LAKHS TO THE ASSESSEE BY 31.3.2003. BEFORE REMAND OFFICER ALSO, SHRI ABDUL KALAM CONFIRMED PAYMENTS TO THE TUNE OF RS.16.00 LAKHS TO THE ASSESSEE. FURTHER THE ASSESSEE HAS DECLARED ADDITIONAL INCOME OF RS.8.00 LAKHS ALSO. BOTH THESE AMOUNTS AGGREGATING TO RS.24.00 LAKHS WOULD ALSO EXPLAIN TH E PAYMENT OF ADVANCE OF RS.25.00 LAKHS. ACCORDINGLY, THE LD CIT(A) EXPRESSED THE VI EW THAT THERE IS NO REQUIREMENT OF MAKING ANY SEPARATE ADDITION ON ACCOUNT OF ADVANCE PAYMENT OF RS.25.00 LAKHS. THE REVENUE IS AGGRIEVED BY THE SAID DECISION OF LD CIT (A). 28. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE RECORD. WE SHALL FIRST DEAL WITH THE GROUND OF REVENUE RELATING TO REJECTION OF PROPOSAL FOR ENHANCEMENT OF INCOME. THE LD D.R SUBMITTED THAT THE LD CIT(A) WA S NOT CORRECT IN REJECTING THE ENHANCEMENT PROPOSAL GIVEN BY THE AO DURING REMAND PROCEEDINGS. HOWEVER, IN OUR I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 22 VIEW, THE TRIBUNAL MAY NOT BE EMPOWERED TO ISSUE AN Y DIRECTION TO THE LD CIT(A) TO CONSIDER THE ENHANCEMENT PROPOSAL GIVEN BY THE AO T HAT TOO DURING THE COURSE OF REMAND PROCEEDINGS. WE ALSO FIND THAT THE LD CIT(A ) DID NOT REJECT THE PROPOSAL ON THE FACE OF IT, BUT HAS EXAMINED THE SAME ON MERITS ALS O. HE HAS POINTED OUT THAT SHRI ABDUL KALAM HAS CONFIRMED PAYMENT OF RS.34.00 LAKHS BY 31.3.2003. IN THE ALTERNATIVE, THE LD CIT(A) HAS POINTED OUT THAT THE PAYMENT OF RS.16.00 LAKHS THAT WAS CONFIRMED BY SHRI ABDUL KALAM IN THE STATEMENT TAKE N BY THE REMAND OFFICER TOGETHER WITH THE ADDITIONAL INCOME OF RS.8.00 LAKHS OFFERED BY THE ASSESSEE WOULD ALSO TAKE CARE OF THE ADVANCE PAYMENT. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS VIEW ON THIS ISSUE. 29. THE NEXT ISSUE RELATES TO THE DETERMINATION OF PROFIT ON SALE OF ANAKULAM ESTATE. ACCORDING TO THE ASSESSEE, HE HAS MADE A PROFIT OF ABOUT RS.2.24 LAKHS ONLY. ACCORDING TO THE ASSESSEE, THOUGH HE PURCHASED 101.50 ACRES O F LAND, HE WAS CONSTRAINED TO USE ABOUT 18.28 ACRES OF LAND FOR CREATING INTERNAL ROA DS WHILE CONVERTING THE TOTAL EXTENT INTO SEVERAL SMALL PLOTS. THUS, ACCORDING TO THE A SSESSEE, HE COULD SELL ONLY 83.22 ACRES OF LAND AND REALIZE A SUM OF RS.70.24 LAKHS AS SALE PROCEEDS. 29.1 IN THE REMAND PROCEEDINGS, THE ASSESSING O FFICER HAS ACCEPTED THAT THE PROFIT OF RS.38.59 LAKHS COMPUTED BY HIM ON SALE OF ANAKULAM ESTATE DURING THE COURSE OF ASSESSMENT PROCEEDING IS WRONG. HENCE, THE AO PROC EEDED TO COMPUTE THE PROFIT DURING THE COURSE OF REMAND PROCEEDING UNDER TWO ME THODS. THE AO HAS SUGGESTED THAT THE ASSESSEE COULD HAVE REALIZED A SUM OF RS.9 4.04 LAKHS, IF THE RATE REALIZED ON THE SUBSEQUENT SALE MADE TO SHRI GEEVARGHESE VARGHE SE IS APPLIED ON THE ENTIRE EXTENT OF LAND SOLD. HOWEVER, THIS IS PURELY AN ASSUMPTIO N ENTERTAINED BY THE AO AND HENCE IT IS NOT BASED UPON ANY MATERIAL OR FACTS. HENCE, IN OUR VIEW, THE LD CIT(A) HAS RIGHTLY REJECTED THE ABOVE SAID METHOD OF CALCULATION OF PR OFIT SUGGESTED BY THE AO. 29.2 THE AO, IN THE REMAND PROCEEDING, HAS ALSO COMPUTED THE PROFIT ON SALE OF ANAKULAM ESTATE AT RS.14.49 LAKHS. SINCE THE SALE V ALUE OF RS.70.24 LAKHS REPORTED BY THE ASSESSEE RELATES TO 83.22 ACRES OF LAND, THE AO HAS ARRIVED AT THIS PROFIT BY I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 23 DEDUCTING THE COST OF LAND PERTAINING TO 83.22 ACRE S OF LAND. HOWEVER, THE CONTENTION OF THE ASSESSEE IS THAT THE AO SHOULD HAVE DEDUCTED THE COST OF ENTIRE LAND OF 101.50 ACRES, SINCE THE REMAINING PORTION OF 18.28 ACRES W AS CONSUMED IN CREATING INTERNAL ROADS. WE NOTICE THAT THE LD CIT(A) HAS ACCEPTED T HE PLEA OF THE ASSESSEE THAT A PORTION OF LAND WAS CONSUMED IN CREATING INTERNAL R OADS, SINCE THE LAND WAS DIVIDED INTO SEVERAL SMALL BLOCKS. WE ALSO TEND TO AGREE WITH T HE SAID VIEW OF LD CIT(A), SINCE IT IS IN THE COMMON KNOWLEDGE OF EVERYBODY THAT A PORTION OF LAND WILL BE CONSUMED FOR CREATING INTERNAL ROADS, WHEN LARGE SIZED LAND IS C ONVERTED INTO SEVERAL SMALL SIZED LAND. HOWEVER, AS POINTED OUT BY LD CIT(A), THE CLAIM OF THE ASSESSEE THAT 18.28 ACRES OF LAND GOT CONSUMED IN CREATION OF INTERNAL ROADS WA S NOT SUBSTANTIATED. IN OUR VIEW, THE ASSESSEE COULD HAVE SUBSTANTIATED THE SAID CLAI M BY FURNISHING THE PARTITION PLAN OF THE LAND. IN THE ABSENCE OF ANY MATERIAL, THE LD C IT(A) HAS DETERMINED THE PROFIT ON SALE OF ANAKULAM ESTATE AT RS.10.00 LAKHS, BY GIVING A REDUCTION OF ABOUT RS.5.00 LAKHS TOWARDS THE COST OF INTERNAL ROADS. UNDER THE CIRC UMSTANCES DISCUSSED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION TAKEN LD CIT (A) ON THIS ISSUE. 30. WE SHALL NOW TAKE UP THE APPEALS FILED BY BOTH THE PARTIES FOR ASSESSMENT YEAR 2004-05. THE ADDITIONS MADE BY THE AO, RELIEF GRANT ED/ADDITIONS SUSTAINED BY LD CIT(A) ARE TABULATED BELOW:- ITEMS AMOUNT RELIEF GRANTED ADDITION SUSTAINED BANKERS CHEQUE TREATED AS UNEXPLAINED INCOME 20,25,000 20,25,000 ----- DEMAND DRAFT NOT APPEARING IN AGREEMENT 1,95,000 1,95,000 ---- COST OF BENZ CAR 5,70,000 5,70,000 ----- CHEQUE ISSUED TO KFC FOR SAMBASIVAN 25,00,000 25,00,000 PEAK CREDIT IN BANKS 98,65,287 48,65,287 50,00,000 I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 24 THE REVENUE IS CONTESTING THE RELIEF GRANTED BY LD CIT(A) ON ALL ITEMS EXCEPT THE ITEM RELATING TO CHEQUE ISSUED TO KFC FOR SAMBASIVAN AM OUNTING TO RS.25.00 LAKHS. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN SUSTAINING THE ADDITION TO THE EXTENT OF RS.50.00 LAKHS IN RESPECT OF PEAK CREDIT IN BANK DEPOSITS. 30.1 THE FIRST TWO ITEMS RELATING TO BANKERS CHEQUE OF RS.20.25 LAKHS AND DEMAND DRAFT OF RS.1.95 LAKHS ARISE OUT OF COMMON SET OF F ACTS. THE SEIZED DOCUMENTS REVEALED THAT THE ASSESSEE HAD PAID AN ADVANCE OF RS.1.00 CR ORE, VIDE AGREEMENT DATED 12.9.2003, FOR PURCHASE OF THAMARAPALLI RUBBER ESTAT E FOR A SUM OF RS.5.88 CRORES. THE ASSESSEE SUBMITTED THAT HE TOOK MONEY FROM SHRI ABDUL KALAM OF ATTINGAL TO THE EXTENT OF RS.99.00 LAKHS BY WAY OF DEMAND DRAFTS AN D PUT IN HIS OWN MONEY OF RS.1.00 LAKH. THE ASSESSEE ALSO FURNISHED THE DETAILS OF D EMAND DRAFTS. ON COMPARING THE DETAILS OF DEMAND DRAFTS WITH THE AGREEMENT, THE AO NOTICED THAT A D.D FOR RS.1,95,000/- BEARING NUMBER 586898 GIVEN IN THE LI ST DID NOT FIND PLACE IN THE AGREEMENT. SIMILARLY A BANKERS CHEQUE DATED 12.9.2 003 DRAWN FROM ICICI BANK FOR A SUM OF RS.20,25,000/- FOUND IN THE AGREEMENT DID NO T FIND PLACE IN THE LIST. HENCE THE AO TREATED BOTH THE AMOUNTS, I.E., RS.1,95,000/- AN D RS.20,25,000/- AS INCOME OF THE ASSESSEE. IN THIS YEAR ALSO, THE AO FURNISHED A RE MAND REPORT DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE LD CIT(A). IN THE REM AND REPORT, THE AO ACCEPTED THAT THE DEMAND DRAFT OF RS.1,95,000/- WAS PURCHASED BY SHRI ABDUL KALAM OF ATTINGAL AND THE SAME IS REQUIRED TO BE CONSIDERED IN HIS HANDS ONLY AND NOT IN THE HANDS OF THE INSTANT ASSESSEE. WITH REGARD TO THE BANKERS CHEQ UE OF RS.20,25,000/-, THE ASSESSEE CLAIMED THAT FOLLOWING DEMAND DRAFTS RECEIVED FROM BUYERS OF ESTATE WERE DEPOSITED INTO HIS BANK ACCOUNT MAINTAINED WITH ICICI BANK AN D THEN A BANKERS CHEQUE FOR RS.20,25,000/- WAS PURCHASED BY UTILIZING THOSE PRO CEEDS. 12.9.2003 1,95,000 12.9.2003 7,00,000 12.9.2003 7,00,000 12.9.2003 4,30,000 -- ------------ 20,25,000 ======== I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 25 ON EXAMINATION OF ICICI BANK ACCOUNT, THE AO FOUND THAT A SUM OF RS.19.75 LAKHS WAS FOUND DEPOSITED BY WAY OF CASH IN THE SAID BANK ACC OUNT, OUT OF WHICH THE BANKERS CHEQUE OF RS.20.25 LAKHS WAS FOUND TO HAVE BEEN PUR CHASED. SINCE THERE WAS CONTRADICTION WITH REGARD TO THE MODE OF MAKING DEP OSITS OF THE ABOVE SAID AMOUNTS, THE AO CONCLUDED THAT THE ASSESSEE HAS FAILED TO EX PLAIN THE SOURCES FOR PURCHASING THE BANKERS CHEQUE OF RS.20.25 LAKHS AND ACCORDINGLY J USTIFIED THE ADDITION OF RS.20.25 LAKHS MADE BY HIM. 30.2 THE LD CIT(A) CONFRONTED THE REMAND REPORT TO THE ASSESSEE. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT HE HAD EARLIER GIVEN TH E EXPLANATIONS ON THE BASIS OF HIS FEEBLE MEMORY AND NOT ON THE BASIS OF ANY BOOKS OF ACCOUNT/DOCUMENT. THE ASSESSEE POINTED OUT THAT SHRI ABDUL KALAM, IN THE STATEMENT TAKEN FROM HIM BY THE REMAND OFFICER ON 6-08-2010, HAS CONFIRMED ABOUT THE PAYME NT OF RS.85.00 LAKHS. SHRI ABDUL KALAM ALSO HAD ALSO EXPLAINED THAT HE RECEIVED A SU M OF RS.29.50 LAKHS FROM HIS BROTHER, RS.50.00 LAKHS WAS DRAWN FROM HIS ODCC ACC OUNT AND ANOTHER RS.5.50 LAKHS WAS WITHDRAWN FROM HIS BUSINESS TO MAKE THE PAYMENT OF RS.85.00 LAKHS. ACCORDING TO THE ASSESSEE, SHRI ABDUL KALAM PAID A SUM OF RS.62. 20 LAKHS BY WAY OF DEMAND DRAFTS AND THE BALANCE AMOUNT OF RS.22.80 LAKHS WAS GIVEN BY WAY OF CASH, THUS TOTALLING TO RS.85.00 LAKHS. 30.3 THE ASSESSEE FURTHER RECONCILED THE PAYMENT OF DEMAND DRAFTS OF RS.99.00 LAKHS AS UNDER:- TOTAL AMOUNT PAID BY WAY OF D.DS AND BANKERS CHEQU E 99.00 LAKHS LESS:- BANKERS CHEQUE 20.25 ------------- 78.75 LESS:- D.DS PURCHASED BY SHRI NADEER SHAH 11.50 D.D. PURCHASED BY E.SULAIKHA 7.00 ---------- 18.50 ----------- D.DS PURCHASED BY SHRI ABDUL KALAM 60.25 ====== I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 26 SHRI ABDUL KALAM HAD ALSO PURCHASED A DEMAND DRAFT FOR RS.1.95 LAKHS IN THE NAME OF SHRI M.M. SULAIMAN, I.E., THE ASSESSEE HEREIN AND H ENCE THE TOTAL AMOUNT OF D.DS PURCHASED BY HIM WORKS OUT TO RS.62.20 LAKHS. ACC ORDING TO THE ASSESSEE, HE DEPOSITED THE MONEY INTO HIS BANK ACCOUNT OUT OF CA SH OF RS.22.80 LAKHS RECEIVED FROM SHRI ABDUL KALAM AND PURCHASED THE BANKERS CHEQUE F OR RS.20.25 LAKHS. THE ASSESSEE ALSO, BEFORE REMAND OFFICER, FURNISHED COPIES OF CE RTIFICATES OBTAINED FROM STATE BANK OF INDIA TO PROVE THAT THE DEMAND DRAFTS WORTH RS.18.5 0 LAKHS WAS PURCHASED BY SHRI NADEER SHAH AND E. SULAIKHA. THE ASSESSEE FURTHER S UBMITTED THAT HE IS NOW ABLE TO CLARIFY ALL THESE FACTS, SINCE HE HAS ANALYZED THE DETAILS COLLECTED DURING THE COURSE OF REMAND PROCEEDINGS. 30.4 THE LD CIT(A) WAS CONVINCED WITH THE EXPLANA TIONS FURNISHED BY THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION OF RS.20.25 LA KHS RELATING TO BANKERS CHEQUE. WITH REGARD TO THE ADDITION OF RS.1.95 LAKHS, SINCE THE REMAND OFFICER HAS EXPRESSED THE VIEW THAT IT NEED NOT BE CONSIDERED IN THE HANDS OF THE ASSESSEE, THE LD CIT(A) DELETED THE SAID ADDITION ALSO. 30.5 THE LD D.R SUBMITTED THAT THE EXPLANATIO NS, ORIGINALLY GIVEN BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS REMAND PROCEEDINGS WERE FOUND TO BE FALSE. BEFORE LD CIT(A), THE ASSESSEE HAS GIVEN A FRESH EXPLANATION, WHICH WAS TOTALLY NEW ONE AND TOTALLY IN CONTRADICTION TO THE SUBMISSIONS EARLIER MADE. SINCE THE ASSESSEE IS CHANGING HIS STAND ON THIS ISSUE, T HE LD D.R CONTENDED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CANCELLING THE ADDITION . HOWEVER, THE LD A.R SUBMITTED THAT THE ASSESSEE WAS HANDICAPPED DURING THE COURSE OF A SSESSMENT PROCEEDING AND HENCE HE WAS CONSTRAINED TO GIVE THE EXPLANATIONS OUT OF HIS MEMORY. HE SUBMITTED THAT DETAILS BECAME CLEAR TO THE ASSESSEE ALSO ONLY DURI NG THE COURSE OF REMAND PROCEEDINGS AND HENCE HE COULD CLARIFY THE FACTS CORRECTLY. HE SUBMITTED THAT THE ASSESSEE IS NOT SHIFTING HIS STAND, BUT ONLY OFFERING EXPLANATIONS ON THE BASIS OF CORRECT FACTS. 30.6 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS I SSUE. WE NOTICE THAT THE AO HAS MADE THE ADDITION OF RS.20.25 LAKHS AND RS.1.95 LAK HS ONLY FOR THE REASON THAT THERE IS I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 27 DIFFERENCE BETWEEN THE LIST OF DEMAND DRAFTS AS SHO WN IN THE LETTER GIVEN BY SHRI NOUSAL (MANAGER OF ABDUL KALAM) AND THE LIST FOUND IN THE SALE AGREEMENT. IN THE LETTER GIVEN BY SHRI NOUSAL, A LIST OF DEMAND DRAFTS FOR AN AMOU NT OF RS.85.00 LAKHS WAS GIVEN. OUT OF THE SAID LIST, TWO DEMAND DRAFTS VIZ., ONE FOR R S.1.95 LAKHS AND ANOTHER ONE FOR RS.4.30 LAKHS DO NOT FIND PLACE IN THE SALE AGREEME NT. IT IS PERTINENT TO NOTE THAT THE AO HAS CONSIDERED ONLY THE DEMAND DRAFT FOR RS.1.95 LAKHS AND IGNORED THE DEMAND DRAFT FOR AN AMOUNT RS.4.30 LAKHS FOR CONSIDERING T HE ADDITION. IN THE CERTIFICATE OBTAINED FROM STATE BANK OF INDIA (PAGE 20 OF ASSES SEES PAPER BOOK), IT IS STATED THAT THE DEMAND DRAFT FOR AN AMOUNT OF RS.4.30 LAKHS WAS PURCHASED BY SHRI N. NADEERSHA IN FAVOUR OF THE ASSESSEE HEREIN. IN THE EXPLANATI ONS FURNISHED TO LD CIT(A) ON THE REMAND REPORT, IT IS STATED BY THE ASSESSEE THAT SH RI NADEER SHAH HAS PURCHASED 8 ACRES OF LAND OUT OF THAMARAPALLY RUBBER COMPANY. THUS, IT IS SEEN THAT THE ASSESSEE HAS RECEIVED DEMAND DRAFTS FROM SHRI ABDUL KALAM (ALSO REFERRED AS ABDUL MAJEED), SHRI NADEER SHAH AND SMT. E. SULAIKHA. OUT OF THE DEMAND DRAFTS OF RS.85.00 LAKHS LISTED OUT IN THE LETTER SUBMITTED BY SHRI NOUSAL, THE ASS ESSEE HAS USED DEMAND DRAFTS WORTH RS.78.75 LAKHS (RS.85.00 LESS RS.1.95 LESS RS.4.30) FOR MAKING PAYMENTS TO M/S THAMARAPPLY RUBBER COMPANY. THE ASSESSEE HAS PURC HASED A BANKERS CHEQUE FOR AN AMOUNT OF RS.20.25 LAKHS BY UTILIZING THE AMOUNT GI VEN BY SHRI ABDUL KALAM. THUS THE DEMAND DRAFTS AGGREGATING TO RS.99.00 LAKHS (RS.78. 75 LAKHS + RS.20.25 LAKHS) WAS GIVEN TO M/S THAMARAPPLY RUBBER COMPANY AS PER THE AGREEMENT. ON CONSIDERATION OF TOTALITY OF FACTS, WE FIND THAT THE ASSESSEE HAS RE CONCILED THE PAYMENTS MADE TO M/S THAMARAPALLI RUBBER COMPANY AND WE TOO FIND IT TO B E CONVINCING. THOUGH THE ASSESSEES EXPLANATIONS WERE CONTRADICTORY, IT HAS BEEN POINTED OUT BY THE ASSESSEE THAT HE WAS NOT HAVING FULL DETAILS DURING THE COUR SE OF ASSESSMENT PROCEEDINGS. IT IS ALSO A FACT THAT THE ASSESSEE DID NOT MAINTAIN BOOK S OF ACCOUNT. HOWEVER, THE SUBSEQUENT EXPLANATIONS ARE SUPPORTED BY THE STATEM ENTS GIVEN BY SHRI ABDUL KALAM (ABDUL MAJEED) AND THE LETTER GIVEN BY STATE BANK O F INDIA. WITH REGARD TO THE ADDITION OF RS.1.95 LAKHS, THE REMAND OFFICER HIMSELF HAS ST ATED THAT THE SAME NEED NOT BE CONSIDERED IN THE HANDS OF THE ASSESSEE. HENCE, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS OF RS.1.95 LAKHS AND RS.2 0.25 LAKHS REFERRED ABOVE. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 28 31 THE NEXT ISSUE CONTESTED BY THE REVENUE RELA TES TO THE ADDITION OF RS.5,70,000/-, BEING THE COST OF PURCHASE OF BENZ CAR. IT WAS NOT ICED BY THE AO THAT THE ASSESSEE HAD PURCHASED A BENZ CAR DURING THE YEAR FOR AN AMOUNT OF RS.5.70 LAKHS. WITH REGARD TO THE SOURCES, THE ASSESSEE EXPLAINED THAT HE OBTAINE D LOANS FROM A PERSON NAMED SHRI SURENDRAN OF TRIVANDRUM AND ALSO FROM SHRI SHAJAHAN . SINCE THE ASSESSEE DID NOT FILE ANY CONFIRMATION LETTERS FROM THEM TO SUBSTANTIATE HIS CLAIM, THE AO TREATED THE ABOVE SAID INVESTMENT IN PURCHASE OF CAR AS INCOME OF THE ASSESSEE. THE LD CIT(A) DELETED THE ADDITION ON FINDING THAT THE ASSESSEE HAD DECLA RED A SUM OF RS.15,00,000/- DURING THE YEAR UNDER CONSIDERATION IN ADDITION TO THE REG ULAR INCOME, THUS BY GIVING TELESCOPING BENEFIT. 31.1 THE LD D.R SUBMITTED THAT THE ASSESSEE S CLAI M OF RECEIPT OF LOANS FROM SHRI SURENDRAN AND SHRI SHAJAHAN HAS BEEN PROVED TO BE W RONG DURING THE COURSE OF REMAND PROCEEDINGS AND HENCE THE LD CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. ON THE CONTRARY, THE LD A.R SUPPORTED THE DECISION TAKEN BY LD CIT(A) ON THIS ISSUE. IT CANNOT BE DENIED THAT THE ASSESSEE COULD NOT PROVE THE CLAIM OF RECEIPT OF LOANS FROM THE TWO PERSONS CITED ABOVE. AT THE SAME TIME, IT IS ALSO A FACT THAT THE ASSESSEE HAS DECLARED ADDITIONAL INCOME OF RS.15.00 LAKHS DURING THE YEAR UNDER CONSIDERATION AND THE SAME SHOULD BE AVAILABLE WITH HIM FOR MAKING IN VESTMENTS DURING THE YEAR UNDER CONSIDERATION. THE COST OF BENZ CAR BEING RS.5,70, 000/-, COULD HAVE BEEN FUNDED THROUGH THE ADDITIONAL INCOME CITED ABOVE AND HENCE , IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN GIVING TELESCOPING BENEFIT, SINCE IT I S A SETTLED POSITION OF LAW THAT THE DEPARTMENT CANNOT TAX BOTH THE SOURCES AS WELL AS I NVESTMENTS MADE OUT OF THOSE SOURCES. 32 THE NEXT ISSUE CONTESTED BY BOTH THE PARTIES REL ATE TO THE ADDITIONS PERTAINING TO BANK DEPOSITS. ON NOTICING HUGE TRANSACTIONS IN VA RIOUS BANK ACCOUNTS MAINTAINED BY THE ASSESSEE, THE AO ASKED FOR EXPLANATIONS. THE A SSESSEE SUBMITTED THAT THE DEPOSITS REPRESENT ADVANCES RECEIVED BY HIM VARIOUS PERSONS IN HIS REAL ESTATE BUSINESS, LOANS RECEIVED FROM VARIOUS PERSONS, COMMISSION RECEIVED FOR PADINJARAKKERA RUBBER ESTATES AND CHERUVALLY ESTATE AND COMPENSATION RECEIVED FOR SUBRAMANIAM ESTATE. THE AO I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 29 NOTICED THAT THE TRANSACTIONS RELATING TO CHERUVALL Y ESTATE AND SUBRAMANIAM ESTATE HAVE TAKEN PLACE IN THE FINANCIAL YEAR 2005-06 AND 2006-07 AND ACCORDINGLY REJECTED THE SAID EXPLANATIONS. IN THE ABSENCE OF DETAILS, THE AO PROPOSED TO COMPUTE PEAK CREDIT BALANCE IN ALL THE BANK ACCOUNTS AND ASSESS THE SAME AS INCOME OF THE ASSESSEE. ACCORDINGLY, THE AO COMPUTED THE PEAK CREDIT BALANC E AT RS.98,65,287/- AND ASSESSED THE SAME. 32.1 IN THE REMAND PROCEEDINGS, THE REMAND OFFICER COMPUTED THE PEAK CREDIT AT RS.219.44 LAKHS AND COMMENTED THAT THE SAME WOULD R ESULT IN ENHANCEMENT OF ADDITION OF RS.98.65 LAKHS MADE BY THE AO. BEFORE REMAND OF FICER, THE ASSESSEE SUBMITTED THAT THE TRANSACTIONS IN HIS BANK ACCOUNTS REPRESENT PUR CHASE/SALE TRANSACTIONS OF ANAKULAM ESTATE AND THAMARAPALLY ESTATES. SINCE THE ASSESSE E DID NOT FILE COPIES OF SALE AGREEMENTS AND CONFIRMATION FROM BUYERS, THE AO REJ ECTED THE SAID EXPLANATIONS. SINCE THE DEPOSITS MADE IN THE BANK ACCOUNTS EXCEEDED RS. 3.00 CRORES, THE AO EXPRESSED THE OPINION THAT THE REVISED PEAK CREDIT OF RS.219.44 L AKHS COMPUTED BY HIM WOULD BE MORE APPROPRIATE THAN THE FIGURE COMPUTED IN THE ASSESSM ENT PROCEEDINGS. 32.2 IN RESPONSE TO THE REMAND REPORT, THE ASSESSEE SUBMITTED THAT THE SALE VALUE OF ANAKULAM ESTATE AND THAMARAPALLI ESTATE WERE RS.70. 26 LAKHS AND RS.534 LAKHS RESPECTIVELY AND MAJOR PORTION OF THE SALE PROCEEDS WERE ROUTED THROUGH THE BANK ACCOUNTS MAINTAINED BY HIM. HE FURTHER SUBMITTED T HAT HE HAS FURNISHED THE NAMES AND ADDRESSES OF THE BUYERS OF THE PROPERTY AND HEN CE THE AO WAS NOT JUSTIFIED IN DRAWING ADVERSE CONCLUSIONS WITHOUT EXAMINING THE B UYERS. 32.3 THE LD CIT(A) FOUND FORCE IN THE CONTENTIONS O F THE ASSESSEE. THE LD CIT(A) EXPRESSED THE VIEW THAT THE AO WAS NOT RIGHT IN NOT CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT THE SALE TRANSACTIONS OF ANAKULAM AND THAMARAPLLI ESTATES WERE ROUTED THROUGH THE BANK ACCOUNTS. THE LD CIT(A) FURTHER O PINED THAT THE TAX AUTHORITIES SHOULD SUBJECT TO TAX, ONLY THE INCOME ELEMENT IN S UCH TYPES OF TRANSACTIONS AND NOT ALL THE CREDITS FOUND IN THE BANK ACCOUNT. ACCORDINGLY , HE REJECTED THE RECOMMENDATION MADE BY THE AO FOR ENHANCEMENT OF PEAK CREDIT ADDIT ION. AT THE SAME TIME, THE LD I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 30 CIT(A) FOUND THAT THE ASSESSEE HAS ALSO NOT DISCLOS ED ALL THE PARTICULARS OF INCOME FULLY TO THE DEPARTMENT. IN THE EARLIER YEARS, THE LD CI T(A) HAD CONFIRMED THE ADDITIONS RELATING TO BANK DEPOSITS TO THE TUNE OF RS.20,30,3 76/- AND THE LD CIT(A) HELD THAT THE SAME SHOULD BE GIVEN SET OFF FROM THE PEAK CREDIT W ORKED OUT BY THE AO IN THE ASSESSMENT PROCEEDINGS. OUT OF THE DISCLOSURE OF A DDITIONAL INCOME OF RS.15.00 LAKHS, A SUM OF RS.5.00 LAKHS WAS TELESCOPED WITH THE COST OF PURCHASE OF BENZ CAR, THUS LEAVING A BALANCE OF RS.10.00 LAKHS. THE AO GAVE S ET OFF OF THE ABOVE SAID RS.10.00 LAKHS ALSO. AFTER GIVING SET OFF ABOVE AMOUNTS, TH E BALANCE AMOUNT STOOD AT RS.68.35 LAKHS (RS.98.65 LESS RS.20.30 LESS RS.10). THE LD CIT(A) FELT THAT THE ENTIRE AMOUNT OF RS.68.35 LAKHS CANNOT BE CONSIDERED AS THE INCOME O F THE ASSESSEE, AS IT MAY NOT REPRESENT HIS PROFITS. SINCE THE ASSESSEE FAILED T O GIVE FOOL PROOF EXPLANATIONS FOR ALL THE ENTRIES FOUND IN THE BANK AND FURTHER MANY ENTRIES REMAINED UNEXPLAINED, THE LD CIT(A) FELT THAT THE INCOME PORTION CAN BE DETERMIN ED BY GIVING A RELIEF OF 25% FROM THE ABOVE SAID AMOUNT OF RS.68.35 LAKHS. ACCORDING LY HE DETERMINED A SUM OF RS.50.00 LAKHS AS UNDISCLOSED INCOME OF THE ASSESSE E OUT OF THE PEAK CREDIT ADDITION OF RS.98.65 LAKHS AND SUSTAINED THE SAME. AGGRIEVED B Y THE DECISION OF LD CIT(A), BOTH THE PARTIES HAVE CONTESTED HIS DECISION ON THIS ISS UE. 32.4 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS I SSUE AND PERUSED THE RECORD. ACCORDING TO THE ASSESSEE, THE DEPOSITS MADE INTO H IS BANK ACCOUNTS REPRESENT TRANSACTIONS RELATING TO REAL ESTATE AND VEHICLE BR OKERAGE BUSINESS. ACCORDING TO THE ASSESSEE, MAJOR PORTION OF SALE PROCEEDS WERE ROUTE D THROUGH HIS VARIOUS BANK ACCOUNTS. THE ASSESSEE HAS ALSO SUBMITTED THAT THE RE ARE MANY INTERBANK TRANSFERS ALSO. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS MAINTAINED SEVERAL BANK ACCOUNTS AND HENCE THE POSSIBILITY OF INTERBANK TRANSFERS CANNOT BE RULED OUT. THE AO HAS NOT ACCEPTED THE ABOVE SAID CLAIM, APPARENTLY FOR WANT OF SUPPORTING EVIDENCES. HOWEVER, THE LD CIT(A) HAS FOUND FORCE IN THE CONTENTIONS OF THE ASSESSEE. IN OUR VIEW ALSO, IT MAY NOT BE CORRECT TO REJECT THE SUBMISSIONS OF THE ASSESSEE IN AN OUTRIGHT MANNER. BECAUSE THE FACT REMAINS THAT THE ASSESSEE IS ENGAG ED IN REAL ESTATE BUSINESS ACTIVITIES AND FURTHER HE DID NOT MAINTAIN BOOKS OF ACCOUNT. HENCE, IN OUR VIEW, THE EXPLANATIONS GIVEN BY THE ASSESSEE HAS TO BE TESTED ON THE BASIS OF AVAILABLE EVIDENCES, SURROUNDING I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 31 CIRCUMSTANCES AND ALSO BY DULY CONSIDERING THE HUMA N CONDUCT AND HUMAN PROBABILITIES, SINCE THE OBJECT OF THE INCOME TAX A CT IS TO ASSESS THE INCOME IN A JUDICIOUS MANNER. THE AO, IN THE REMAND PROCEEDING S, HAS POINTED OUT THAT AGGREGATE AMOUNT OF DEPOSITS MADE DURING THE YEAR IN VARIOUS BANK ACCOUNTS OF THE ASSESSEE WAS ABOUT RS.300 LAKHS. THE ASSESSEE HAS POINTED OUT T HAT THE SALE VALUE OF ANAKULAM ESTATE WAS 70.26 LAKHS AND THAMARAKULAM ESTATE WAS RS .534 LAKHS, BOTH AGGREGATING TO ABOUT RS.600 LAKHS. ACCORDINGLY, THE ASSESSEE H AS SUBMITTED THAT THE DEPOSITS MADE INTO HIS BANK ACCOUNT REPRESENT PART OF SALE CONSID ERATIONS PERTAINING TO BOTH THE ESTATES. THIS EXPLANATION OF THE ASSESSEE, IN OUR VIEW, CANNOT BE REJECTED ALTOGETHER. EVEN FOR A MOMENT, IF IT IS ASSUMED THAT THE ENTIRE DEPOSITS MADE INTO THE BANK ACCOUNT REPRESENTS THE INCOME OF THE ASSESSEE AS PRESUMED B Y THE AO, IT IS REQUIRED TO EXAMINE WHETHER THE MONEY WITHDRAWN FROM THE BANK WAS CONVE RTED BY THE ASSESSEE INTO SOME OTHER FORM OF ASSET. IT IS IN THE COMMON KNOWLEDGE OF EVERYBODY THAT THE MONEY GENERATED SHALL BE KEPT EITHER IN THE FORM OF CASH OR DEPOSITS OR SOME OTHER FORM OF ASSETS OR IT WOULD BE SPENT TO MEET EXPENSES. THE AO HAS NOT POINTED OUT ANY MAJOR EXPENSE THAT WAS INCURRED BY THE ASSESSEE DURING TH E YEAR. THE SEARCH OFFICIALS HAVE NOT SEIZED CASH OF HIGH VALUE DURING THE COURSE OF SEARCH. THE MONEY WAS ALSO NOT SEEN KEPT PARKED IN THE BANK ACCOUNTS. THE DEPARTM ENT HAS ALSO NOT POINTED OUT THAT THE ASSESSEE HAS ACQUIRED PERSONAL ASSETS. IN THE A BSENCE OF CORRESPONDING ASSET/EXPENSE VIS--VIS THE ALLEGED INCOME, IN OUR VIEW, IT MAY NOT BE PROPER TO PRESUME THAT THE ENTIRE AMOUNT OF DEPOSITS MADE INT O THE BANK ACCOUNT REPRESENT THE INCOME OF THE ASSESSEE. HENCE, IN OUR VIEW, THERE IS FORCE IN THE SUBMISSION OF THE ASSESSEE THAT HE HAS ROUTED THE MAJOR PORTION OF SA LE PROCEEDS OF REAL ESTATE BUSINESS ACTIVITIES. 32.5 WE NOTICE THAT THE LD CIT(A) HAS REJECTED TH E PROPOSAL FOR ENHANCEMENT SUBMITTED BY THE AO IN HIS REMAND REPORT. THE DEPA RTMENT IS ASSAILING THIS DECISION OF LD CIT(A) ALSO. HOWEVER, AS STATED EARLIER, LEGALL Y THE TRIBUNAL MAY NOT HAVE THE POWER TO COMPEL THE LD CIT(A) TO ACCEPT THE ENHANCEMENT P ROPOSAL. FURTHER THE ENHANCEMENT PROPOSAL GIVEN BY THE AO IS BEYOND THE SCOPE OF REFERENCE FOR A REMAND I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 32 REPORT. ON MERITS ALSO, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN REJECTING THE ENHANCEMENT PROPOSAL IN VIEW OF THE FOREGOING DISCU SSIONS. 32.6 SINCE THE LD CIT(A) REJECTED THE ENHANCEMENT PROPOSAL, HE HAS PROCEEDED TO DETERMINE THE INCOME FROM THE PEAK CREDIT BALANCE O F RS.98.65 LAKHS, ORIGINALLY FIXED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. AS STATED EARLIER, THE LD CIT(A) HAS DETERMINED THE INCOME ELEMENT AT RS.50.00 LAKHS . HOWEVER, IN OUR VIEW, THERE IS A FLAW IN THE APPROACH OF LD CIT(A). IT IS PERTINENT TO NOTE THAT THE LD CIT(A), AFTER HAVING HELD THAT THE ENTIRE AMOUNT OF DEPOSITS CANN OT BE CONSIDERED AS INCOME OF THE ASSESSEE, HAS ACTUALLY HELD THE PEAK CREDIT BALANCE OF RS.98.65 LAKHS AS THE GROSS RECEIPTS OF THE ASSESSEE. FROM THE ABOVE SAID AMOU NT, HE HAS ALLOWED SET OFF OF INCOME ELEMENT DECLARED BY THE ASSESSEE/CONFIRMED I N HIS HANDS TO THE TUNE OF RS.30.30 LAKHS, RESULTING IN A BALANCE OF RS.68.35 LAKHS. FROM THIS AMOUNT, THE LD CIT(A) HAS ALLOWED A DEDUCTION OF ABOUT 25%, I.E., ABOUT RS.18.35 LAKHS TOWARDS EXPENSES AND ACCORDINGLY CONFIRMED THE ADDITION TO THE EXTENT OF RS.50.00 LAKHS. 32.7 IT IS AN ADMITTED FACT THAT THE ASSESSEE I S ACTING AS COMMISSION AGENT IN REAL ESTATE AND VEHICLE BUSINESSES. IT IS NOBODYS CASE THAT THE ASSESSEE IS CARRYING ON ANY OTHER BUSINESS. THE LD CIT(A) HAS ALSO FOUND FORCE IN THE CONTENTIONS OF THE ASSESSEE THAT THE SALE PROCEEDS RELATING TO THE REAL ESTATE BUSINESS ACTIVITIES HAVE BEEN ROUTED THROUGH THE BANK ACCOUNTS OF THE ASSESSEE. AFTER H AVING ACCEPTED THESE FACTS, IN OUR VIEW, THE LD CIT(A) WAS NOT RIGHT IN PRESUMING THAT THE BANK DEPOSITS REPRESENT RECEIPTS FROM SOME OTHER BUSINESS ACTIVITIES. IN A SSESSMENT YEAR 2003-04 ALSO, THE ASSESSEE HAD SUCH KIND OF TRANSACTIONS IN HIS BANK ACCOUNTS. THE AO MADE AN ADDITION OF RS.50,000/- ONLY TOWARDS PEAK CREDIT BALANCE. I N THE REMAND PROCEEDINGS, THE AO RECOMMENDED FOR DELETION OF THE SAME IN VIEW OF SMA LLNESS OF THE AMOUNT. HOWEVER, THE FACT REMAINS THAT THE AO HAS ACCEPTED THAT THE DEPOSITS FOUND IN THE BANK ACCOUNTS RELATE TO THE TRANSACTIONS CARRIED BY THE ASSESSEE IN HIS REAL ESTATE AND VEHICLE BROKERAGE BUSINESS. IN OUR VIEW, SAME LOGIC SHOULD BE EXTENDED TO THIS YEAR ALSO. HENCE, WE DO NOT FIND ANY REASON TO REJECT THE CLAI M OF THE ASSESSEE THAT THE BANK DEPOSITS RELATE TO THE TRANSACTIONS CARRIED BY HIM IN HIS REAL ESTATE AND VEHICLE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 33 BROKERAGE BUSINESS. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION RELATING TO TH E BANK DEPOSITS. 33. WE SHALL NOW TAKE UP THE APPEALS FILED BY BOTH THE PARTIES FOR ASSESSMENT YEAR 2005-06. THE ADDITIONS MADE BY THE AO, RELIEF GRANT ED/ADDITIONS SUSTAINED BY LD CIT(A) ARE TABULATED BELOW:- ITEMS AMOUNT RELIEF GRANTED ADDITION SUSTAINED PAYMENT TO M/S RAJASREE MOTORS FOR PURCHASE OF CAR 11,28,840 11,28,840 ----- INVESTMENT IN NEMOM PROPERTY 1,59,000 1,59,000 ----- PAYMENT TO RAJSHREE MOTORS 28,00,000 28,00,000 ----- PURCHASE OF LAND AT VELOOR VILLAGE 3,67,500 3,67,500 ----- PEAK CREDIT IN BANKS 85,77,889 63,44,473 22,33,416 THE REVENUE IS CONTESTING ALL THE RELIEFS GRANTED B Y LD CIT(A) AND THE ASSESSEE IS ASSAILING THE DECISION OF LD CIT(A) IN SUSTAINING A PORTION OF ADDITION RELATING TO PEAK CREDIT IN BANKS. 33.1. IN THIS YEAR, THE ASSESSEE DECLARED FOLLO WING INCOME IN THE RETURN OF INCOME/REVISED RETURN OF INCOME FILED BY HIM U/S 15 3A OF THE ACT. RENTAL INCOME 1,68,000 INCOME FROM OTHER SOURCES 4,35,000 ADDITIONAL INCOME 18,00,000 ------------- TOTAL 24,03,000 ======== 34 THE FIRST ISSUE RELATES TO THE ADDITION OF RS.11,28,840/- RELATING TO THE PAYMENT MADE TO M/S RAJASHREE MOTORS FOR PURCHASE OF CAR, V IDE RECEIPT DATED 12.8.2004. BEFORE THE AO, DURING THE COURSE OF ORIGINAL ASSESS MENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT HE SOLD A BENZ CAR WITH REGN. NO. KL -01-V-9669 ON 29.7.2004 TO A PERSON NAMED SHRI SHAMUSUDEEN AND USED THE SALE PRO CEEDS THEREOF TO MAKE THE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 34 ABOVE SAID PAYMENT. HOWEVER, THE ASSESSEE DID NOT FURNISH ANY DOCUMENT TO SUPPORT HIS CLAIM AND HENCE THE AO ASSESSED THE SUM OF RS.1 1,28,840/- AS INCOME OF THE ASSESSEE. 34.1 AS IN EARLIER YEAR, THE LD CIT(A) CALLED FO R A REMAND REPORT FROM THE ASSESSING OFFICER. IN THE REMAND PROCEEDINGS, THE AO CONDUCT ED ENQUIRIES BY ISSUING COMMISSION AND IT WAS FOUND OUT THAT THE CAR WAS SOLD TO SHRI SHAMSUDEEN FOR RS.20.50 LAKHS. ACCORDING TO THE REMAND OFFICER, SHRI SHAMUSUDEEN P AID A SUM OF RS.4.50 LAKHS BY CASH AND THE BALANCE AMOUNT OF RS.16.00 LAKHS WAS A DJUSTED AGAINST THE ICICI BANK LOAN. ACCORDINGLY, THE REMAND OFFICER ACCEPTED THE AVAILABILITY OF SOURCES TO THE EXTENT OF RS.4.50 LAKHS AND RECOMMENDED FOR SUSTAINING THE ADDITION OF THE BALANCE AMOUNT OF RS.6,78,840/- (RS.11,28,840/- (-) RS.4,50,000). 34.2 WHILE GIVING REPLY TO THE REMAND REPORT, T HE ASSESSEE SUBMITTED THAT HE HIMSELF RECEIVED THE CHEQUE OF RS.16.00 LAKHS FROM SHRI SHAMSUDEEN AND IT WAS INCORRECT TO SAY THAT HE HAS DIRECTLY PAID THE AMOU NT TOWARDS SETTLEMENT OF LOAN, AS SHRI SHAMUSUDEEN WAS NOT AWARE OF OUTSTANDING BALANCE IN THE LOAN ACCOUNT. THE ASSESSEE ALSO CONTENDED THAT THE STATEMENT WAS RECORDED FROM SHRI SHAMSUDEEN BEHIND HIS BACK AND FURTHER HE WAS NOT GIVEN OPPORTUNITY TO CROSS E XAMINE HIM. HOWEVER, THE ASSESSEE FURNISHED A LETTER DATED 08-09-2010 OBTAINED FROM S HRI SHAMSUDEEN, WHEREIN HE CLARIFIED THAT HE GAVE THE AMOUNT OF RS.16.00 LAKHS TO THE ASSESSEE HEREIN BY AVAILING LOAN FROM ICICI BANK. THE ASSESSEE FURTHER SUBMITT ED THAT HE HAD DECLARED TOTAL INCOME OF RS.24.03 LAKHS FOR ASST. YEAR 2005-06, WH ICH IS FAR EXCESS THAN THE ADDITION OF RS.6.78 LAKHS SUGGESTED BY THE REMAND OFFICER. 34.3 THE LD CIT(A) NOTICED THAT THE AO HAS ACCE PTED THE AVAILABILITY OF SOURCES TO THE EXTENT OF RS.4.50 LAKHS AND HENCE SUGGESTED ADD ITION OF RS.6.78 LAKHS. FURTHER THE LD CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE T HAT THE INCOME DECLARED FOR THE YEAR IS MORE THAN THE SUGGESTED ADDITION OF RS.6.78 LAKHS. DURING THIS YEAR, THE ASSESSEE HAD DECLARED ADDITIONAL INCOME OF RS.18.00 LAKHS. ACCORDINGLY, THE LD CIT(A) TELESCOPED THE ADDITION OF RS.6.78 LAKHS SUGGESTED BY THE AO IN THE REMAND REPORT I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 35 AGAINST THE ADDITIONAL INCOME OF RS.18.00 LAKHS AND ACCORDINGLY DELETED THE ENTIRE ADDITION OF RS.11.28 LAKHS. THE DEPARTMENT IS AGGR IEVED BY THE SAID DECISION OF LD CIT(A). 34.4 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS DECLARED A TOTAL INCOME OF RS.24.03 LA KHS INCLUDING ADDITIONAL INCOME OF RS.18.00 LAKHS. WHEN THESE SOURCES OF AVAILABLE, I N OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN TELESCOPING THE ADDITION OF RS.6.78 LA KHS AGAINST THE INCOME DECLARED BY THE ASSESSEE. FURTHER, IN THE REMAND PROCEEDINGS, THE AO HAS ACCEPTED THE AVAILABILITY OF RS.4.50 LAKHS ON SALE OF CAR TO SHRI SHAMSUDEEN. H ENCE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) IN DELETING THE ADDITION OF RS.11.28 LAKHS. 35. IN THE REMAND REPORT, THE AO HIMSELF HAS SU GGESTED FOR DELETION OF FOLLOWING TWO SMALL ADDITIONS:- INVESTMENT IN NEMOM PROPERTY - 1,59,000 PURCHASE OF LAND AT VELOOR VILLAGE - 3,67,500 THE LD CIT(A) ALSO ACCEPTED THE SAME AND TELESCOPED THE ABOVE SAID ADDITIONS AGAINST THE ADDITIONAL INCOME DECLARED BY THE ASSESSEE. IN VIEW OF THE AVAILABILITY OF FUNDS THROUGH THE ADDITIONAL INCOME DECLARED BY THE ASSES SEE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) IN DELETING THESE TWO ADD ITIONS. 36. THE NEXT ADDITION RELATES TO THE PAYMENTS AG GREGATING TO RS.28.00 LAKHS GIVEN TO M/S RAJASHREE MOTORS ON VARIOUS DATES. THE SEARCH DOCUMENTS REVEALED THAT THE ASSESSEE HAS PAID AMOUNTS TO M/S RAJASHREE MOTORS A GGREGATING TO RS.58.00 LAKHS ON VARIOUS DATES AS DETAILED BELOW:- 31.07.2004 45,900 04.08.2004 16,00,000 05.08.2004 1,54,100 17.03.2005 30,00,000 17.03.2005 10,00,000 ABOUT THE SOURCES FOR MAKING THESE PAYMENTS, THE A SSESSEE STATED THAT HE BORROWED LOANS FROM ICICI BANK AND ALSO USED THE SALE PROCEE DS OF RS.28.00 LAKHS REALIZED ON I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 36 SALE OF BENZ CAR KL-05-S1. THE AO ACCEPTED THE SOU RCE FOR MAKING PAYMENT OF RS.30.00 LAKHS. FOR OTHER PAYMENTS, THE DATE OF LO ANS DID NOT MATCH WITH THE DATES OF PAYMENTS AND HENCE THE AO ASSESSED THE AGGREGATE AM OUNT OF RS.28.00 LAKHS AS THE INCOME OF THE ASSESSEE. 36.1 IN THE REMAND REPORT, THE ASSESSING OFFICER ACCEPTED THE FACT THAT ALL THE PAYMENTS WERE MADE BY CHEQUE TO M/S RAJASHREE MOTOR S. HE ALSO ACCEPTED THE FACT THAT THE ASSESSEE HAS AVAILED SEVERAL CAR LOANS FRO M ICICI BANK FOR THE BUSINESS. SINCE THE ASSESSEE DID NOT FURNISH THE BANK ACCOUNTS AND PROVE THE NEXUS BETWEEN THE LOANS TAKEN BY HIM AND THE PAYMENTS MADE TO RAJASHREE MOT ORS, THE AO EXPRESSED THE VIEW THAT THERE IS A POSSIBILITY OF DIVERTING THE LOAN F UNDS TO THE REAL ESTATE BUSINESS. IN THE ABSENCE OF DETAILS, THE REMAND OFFICER OPINED THAT THE ADDITION OF RS.28.00 LAKHS WAS JUSTIFIED. 36.2 IN REPLY TO THE REMAND REPORT, THE ASSESSE E SUBMITTED THAT THE TERMS AND CONDITIONS OF BANK ARE VERY STRICT AND HENCE THERE IS NO SCOPE OF DIVERSION OF VEHICLE LOANS FOR OTHER PURPOSES. 36.3 THE LD CIT(A) FELT THAT THE REMAND REPORT S UBMITTED ON THIS ISSUE IS CONTRADICTORY, I.E., THE AO HAS ACCEPTED THE FACT T HAT THE ASSESSEE HAS AVAILED SEVERAL CAR LOANS, BUT AT THE SAME TIME HE IS JUSTIFYING TH E ADDITION FOR WANT OF DETAILS SHOWING THE NEXUS BETWEEN THE CAR LOANS AND THE PAYMENTS MA DE TO M/S RAJSHREE MOTORS. HENCE, THE LD CIT(A) ACCEPTED THE CONTENTIONS OF TH E ASSESSEE AND DELETED THE ADDITION OF RS.28.00 LAKHS. 36.4 WE HAVE HEARD THE RIVAL CONTENTIONS ON THI S ISSUE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS AVAILED SE VERAL LOANS FOR PURCHASING CARS. IT IS ALSO A FACT THAT THE ASSESSEE IS A BROKER IN VEHICL ES. IT IS ALSO IN THE COMMON KNOWLEDGE OF ALL THAT THE CAR LOANS ARE DISBURSED B Y MAKING NECESSARY ENDORSEMENT IN THE REGISTRATION CERTIFICATE BOOK OF THE CONCERNE D VEHICLE AND HENCE THE POSSIBILITY OF DIVERSION OF FUNDS IS VERY REMOTE. THE AO HAS REJE CTED THE CONTENTIONS OF THE ASSESSEE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 37 ONLY FOR THE REASON THAT HE HAS FAILED TO PROVE THE NEXUS. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE DID NOT MAINTAIN BOOKS OF ACCOUNT AND HENCE IT WAS DIFFICULT FOR HIM TO PROVE THE NEXUS. HOWEVER, SINCE THE CAR LOANS C ANNOT BE USED FOR OTHER PURPOSES, IN OUR VIEW, THE AO SHOULD NOT HAVE JUSTIFIED THE ADDI TION, THAT TOO AFTER ACCEPTING THE SOURCE OF THESE PAYMENTS. ACCORDINGLY, IN OUR VIEW , THE LD CIT(A) WAS JUSTIFIED IN DELETING THIS ADDITION OF RS.28.00 LAKHS. 37. THE LAST ISSUE RELATES TO THE ADDITION OF P EAK CREDIT BALANCE IN THE BANK ACCOUNTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO EXPLAIN THE SOURCES OF DEPOSITS OF RS.5.00 LAKHS AND ABOVE MADE IN THE BANK ACCOUNTS OF THE ASSESSEE AND ALSO THE DETAILS OF WITHDRAWALS OF RS. 2.00 LAKHS AND ABOVE. THE ASSESSEE COULD NOT SUBMIT EXACT DETAILS, BUT STATED THAT THE Y REPRESENT THE ADVANCES RECEIVED FROM REAL ESTATE TRANSACTIONS, LOANS RECEIVED AND C OMMISSION RECEIVED FOR PADINJAREKKARA RUBBER ESTATE, CHERUVALLY ESTATE AND T HE COMPENSATION AMOUNT RECEIVED FOR SUBAMANIAM ESTATE. THE AO NOTICED THAT THE TRANSACTIONS RELATING TO CHERUVALLY ESTATE AND SUBRAMANIAM ESTATE HAS TAKEN PLACE DURING THE FINANCIAL YEARS 2005-06 AND 2006-07, I.E., DURING SUCCEEDING YEARS. IN THE ABSENCE OF DETAILS, THE ASSESSING OFFICER PROPOSED TO ASCERTAIN PEAK CREDIT OF ALL BANK ACCOUNTS AND MAKE THE ADDITION. THE AO CALCULATED THE PEAK CREDIT BALANC E, WHICH EXISTED ON 23.12.2004, AT RS.85,77,889/- AND ACCORDINGLY ASSESSED THE SAME. 37.1 IN THE REMAND PROCEEDINGS, THE AO WORKED O UT THE PEAK CREDIT AND ACCORDING TO HIM, THE PEAK CREDIT EXISTED ON 10.01.2005 AT RS .236.01 LAKHS. HE HAD WORKED OUT THE PEAK CREDIT FOR THE IMMEDIATELY PRECEDING YEAR AT RS.219.44 LAKHS. ACCORDINGLY, THE AO EXPRESSED THE VIEW THAT THE ASSESSEE IS REQUIRED TO EXPLAIN THE DIFFERENCE OF RS.16.57 LAKHS (236.01 (-) 219.44) AND IT WILL RESU LT IN ENHANCEMENT OF INCOME ALSO. 37.2 IN REPLY TO THE REMAND REPORT, THE ASSESSE E SUBMITTED THAT THE MAJORITY OF SALE PROCEEDS OF ANAKULAM ESTATE AND THAMARAPALLY RUBBER ESTATE WERE ROUTED THROUGH HIS BANK ACCOUNTS. THEIR SALE PROCEEDS WERE RS.70.26 L AKHS AND RS.534 LAKHS RESPECTIVELY. HE SUBMITTED THAT THE LAST SALE IN THE BLOCK OF THA MARAPLLY ESTATE TOOK PLACE ON I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 38 29.3.2005 FOR A CONSIDERATION OF RS.121.28 LAKHS. HE FURTHER SUBMITTED THE PEAK CREDIT BALANCE WORKED FOR THE CURRENT YEAR AND FOR THE IMM EDIATELY PRECEDING YEAR PUT TOGETHER WORKS OUT TO RS.455.45 LAKHS, WHICH IS LES S THAN THE SALE CONSIDERATION OF THAMARAPALLY ESTATE, I.E., 534 LAKHS. ACCORDINGLY, IT WAS CONTENDED BY THE ASSESSEE THERE IS NO NECESSITY TO ADD THE PEAK CREDIT BALANC ES. 37.3 THE LD CIT(A) EXAMINED THIS ISSUE AND DECI DED AS UNDER:- (A) THE PROPOSAL FOR ENHANCEMENT OF PEAK CREDIT T O RS.236.01 LAKHS AND CONSEQUENT ADDITION OF INCREMENTAL PEAK CREDIT OF R S.16.57 LAKHS WAS BEYOND THE JURISDICTION OF AO DURING REMAND PROCEEDINGS. (B) IN THE IMMEDIATELY PRECEDING YEAR, THE LD CIT (A) HAD EXPRESSED THE VIEW THAT, ONLY THE INCOME ELEMENT OUT OF THE DEPOSITS I S ASSESSABLE TO TAX. THE LD CIT(A) TOOK THE SAME VIEW IN THIS YEAR ALSO. (C) SINCE THE LD CIT(A) HAS REJECTED THE ENHANCE MENT PROPOSAL GIVEN BY THE AO IN REMAND REPORT, THE FIRST APPELLATE AUTHORITY PROCEEDED TO DETERMINE THE INCOME PORTION FROM THE PEAK CREDIT AMOUNT OF RS.85.77 LAK HS DETERMINED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. IN THE IMMEDIATELY PRECEDI NG YEAR YEAR, HE HAD DETERMINED THE INCOME OUT OF PEAK CREDIT AMOUNT AT RS.50.00 LA KHS. THE LD CIT(A) FIRST GAVE SET OFF OF THE SAME, WHICH LEFT A BALANCE OF RS.35.77 L AKHS. DURING THIS YEAR THE ASSESSEE HAD DECLARED ADDITIONAL INCOME OF RS.18.00 LAKHS AN D THE SAME WAS TELESCOPED AGAINST PAYMENT MADE TO M/S RAJSHREE MOTORS AND ALSO AGAINS T THE COST OF TWO PROPERTIES PURCHASED. AFTER SUCH SET OFF, THERE REMAINED A BA LANCE OF RS.5,95,160/-. HENCE THE LD CIT(A) GAVE FURTHER SET OFF OF ROUND SUM OF RS.6.00 LAKHS, WHICH RESULTED IN A BALANCE AMOUNT OF RS.29.77 LAKHS. IN THE EARLIER YEAR, TH E LD CIT(A) ALLOWED A DEDUCTION OF 25% AND DETERMINED THE BALANCE AMOUNT AS THE INCOME OF THE ASSESSEE. APPLYING THE SAME PRINCIPLES, THE LD CIT(A) ALLOWED FURTHER REDU CTION OF 25% FROM RS.29.77 LAKHS DETERMINED ABOVE AND ACCORDINGLY FIXED THE INCOME A MOUNT AT RS.22,33,416/- AND CONFIRMED THE ADDITION TO THAT EXTENT. BOTH THE PA RTIES ARE AGGRIEVED BY THE SAID DECISION OF LD CIT(A) I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 39 37.4 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. AS IN THE PRECEDING YEARS, THE DEPARTMENT IS FINDING FAULT WITH LD CIT(A) IN N OT ACCEPTING THE ENHANCEMENT PROPOSAL GIVEN BY THE AO IN HIS REMAND REPORT. AS HELD IN THE PREVIOUS YEAR, WE DECLINE TO INTERFERE WITH THIS MATTER. WE ALSO NOTICE THAT THE LD CIT(A) HAS REJECTED THE ENHANCEMENT PROPOSAL ON LEGAL GROUND AND ALSO ON ME RITS. 37.5 AN IDENTICAL ADDITION OF PEAK CREDIT BALAN CE WAS MADE IN THE ASSESSMENT YEAR 2004-05 ALSO. WE HAVE DEALT WITH THE SAME IN DETAI L WHILE CONSIDERING THE APPEAL OF THAT YEAR. ALL THE OBSERVATIONS MADE THEREIN SHALL ALSO APPLY FOR THE YEAR UNDER CONSIDERATION. CONSISTENT WITH THE VIEW TAKEN IN A SSESSMENT YEAR 2004-05, IN THIS YEAR ALSO, WE HOLD THAT THERE IS FORCE IN THE SUBMISSION OF THE ASSESSEE THAT HE HAS ROUTED THROUGH MAJOR PORTION OF SALE PROCEEDS OF REAL ESTA TE BUSINESS AND VEHICLE BUSINESS THROUGH HIS BANK ACCOUNTS. 38. WE SHALL NOW TAKE UP THE APPEAL FILED BY TH E REVENUE FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSEE HAS NOT FILED APPEAL FOR THI S YEAR. IN THIS YEAR, THE AO HAS MADE FOLLOWING ADDITIONS:- INCOME FROM COMMISSION BUSINESS - RS.12,88,00,00 0/- RENT FROM CASHEW FACTORY - RS. 1,68,000/- PEAK CREDIT BALANCE IN BANK ACCOUNTS - RS. 2,93,9 1,652/- BEFORE LD CIT(A), THE ASSESSEE CONTENDED THAT (A) THERE IS VIOLATION OF NATURAL JUSTICE ON THE GROUND THAT THE AO HAS MADE THE IMPUGNED ADDITIONS BY COLLECTING MATERIALS BEHIND T HE BACK OF THE ASSESSEE. (B) THE AO WAS NOT RIGHT IN LAW IN PLACING RELIANCE ON THE DEFECTIVE RETURN ORIGINALLY FILED BY THE ASSESSEE U/S 139 OF THE ACT . (C) THE AO WAS NOT RIGHT IN ASSESSING COMMISSION INCOM E AT RS.12.88 CRORES, WHEN HE HAS RECEIVED ONLY RS.4.88 CRORES AND FURTHE R HE REPAID A SUM OF RS.2.09 CRORES OUT OF THE ABOVE SAID SUM. (D) THE AO WAS NOT RIGHT IN ASSESSING RENTAL INCOME OF RS.1,68,000/-, SINCE HE HAS NOT LET OUT THE SAME DURING THE INSTANT YEAR. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 40 (E) THE AO WAS NOT RIGHT IN ASSESSING THE PEAK CREDIT B ALANCE IN BANK ACCOUNTS, SINCE THE ASSESSEE HAS ROUTED THE REAL ESTATE AND V EHICLE BROKERAGE TRANSACTIONS THROUGH HIS BANK ACCOUNTS. 39. THE LD CIT(A) ACCEPTED THE CONTENTIONS OF T HE ASSESSEE THAT THERE IS VIOLATION OF NATURAL JUSTICE AND ACCORDINGLY, VIDE PARAGRAPH 6.3 OF HER ORDER, QUASHED THE ASSESSMENT ORDER IN TOTO. THE LD CIT(A) ALSO HELD THAT THE AO WAS NOT CORRECT IN PLACING RELIANCE ON THE RETURN FILED U/S 139(1) OF THE ACT, SINCE IT IS A DEFECTIVE RETURN FOR THE REASON THAT THE ASSESSEE DID NOT ATTACH BAL ANCE SHEET TO IT. HAVING HELD SO, THE LD CIT(A) ALSO PROCEEDED TO DECIDE THE ISSUES ON ME RITS AND DELETED ALL THE THREE ADDITIONS MADE BY THE LD CIT(A). AGGRIEVED, THE RE VENUE HAS FILED THIS APPEAL BEFORE US. 40. THE TWO LEGAL GROUNDS URGED BY THE ASSES SEE VIZ., VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND VALIDITY OF CONSIDERING THE DEF ECTIVE RETURN FILED U/S 139(1) OF THE ACT AND THE GROUND URGED ON MERITS RELATING TO THE ASSE SSMENT OF COMMISSION AT RS.12.88 CRORES ARISE OUT OF COMMON SET OF FACTS, WHICH ARE NARRATED HEREUNDER IN BRIEF. DURING THE COURSE OF SEARCH, THE SEARCH OFFICIALS SEIZED A N AGREEMENT DATED 12.8.2005 ENTERED BETWEEN THE ASSESSEE AND ANOTHER PERSON NAMED SHRI VARKEY GEORGE BY NAME AGREEMENT FOR JOINT SERVICES. THE OBJECTIVE OF T HE AGREEMENT WAS TO FINALISE THE MANNER OF SHARING OF COMMISSION INCOME OF RS.20.00 CRORES REALIZED ON MEDIATING THE FINALISATION OF SALE OF CHERUVALLY ESTATE AS A GOING CONCERN BY M/S HARRISONS MALAYALAM LTD (SELLER) TO M/S GOSPEL FOR ASIA (BUYER) FOR A C ONSIDERATION OF RS.63.00 CRORES. DURING THE COURSE OF SEARCH, THE SEARCH OFFICIALS A LSO SEIZED VOUCHERS EVIDENCING PAYMENTS MADE TO LABOURERS TO THE TUNE OF RS.9.56 C RORES AS COMPENSATION. 40.1. IT IS PERTINENT TO DISCUSS ABOUT THE AGRE EMENT ENTERED BETWEEN THE ASSESSEE AND SHRI VARKEY GEORGE. IT IS MENTIONED IN THE AGR EEMENT THAT THE ASSESSEE IDENTIFIED THE CHERUVALLY ESTATE AS A SUITABLE ACQUISITION FOR M/S GOSPEL FOR ASIA AND ACCORDINGLY REQUESTED SHRI VARKEY GEORGE TO NEGOTIATE THE DEAL WITH M/S HARRISONNS MALAYALAM LTD, THE OWNER OF THE CHERUVALLY ESTATE. ACCORDINGLY SHR I VARKEY GEORGE NEGOTIATED THE DEAL I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 41 FOR A CONSIDERATION OF RS.63.00 CRORES. ACCORDINGL Y, HE ENTERED INTO A SALE AGREEMENT WITH M/S HARRISONS MALAYALAM LTD ON 15.6.2005, AS P ER WHICH THE COMPANY AGREED TO SELL THE ESTATE TO THE NOMINEE OF SRI VARKEY GEORGE . ACCORDINGLY HE NOMINATED M/S GOSPEL FOR ASIA AS PURCHASER. SINCE THE ASSESSEE A ND SHRI VARKEY GEORGE HAVE WORKED TOGETHER, THEY HAVE ENTERED INTO THIS AGREEMENT TO SHARE THE COMMISSION INCOME. IN CONNECTION WITH THIS DEAL, A SUM OF RS.20.00 CRORES WAS RECEIVED AS COMMISSION FROM M/S GOSPEL FOR ASIA. IT WAS AGREED THAT ALL THE PAY MENTS RECEIVED SHALL BE ROUTED THROUGH SHRI VARKEY GEORGE. THE RELEVANT CLAUSES O F THE AGREEMENT ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIENCE. 3. SULAIMAN WILL BE RESPONSIBLE FOR ARRANGING FOR COMPLETION OF ALL REGISTRATION FORMALITIES, RECEIVING BACK THE REGISTERED CONVEYAN CE AND ARRANGING FOR MUTATION OF NAMES IN THE REVENUE RECORDS TO REFLECT THE OWNE RSHIP OF GFA TO AND IN RESPECT OF THE ESTATE AND DEALING WITH ALL PENDING L ABOUR AND STAFF ISSUES AND DISPUTES AND DULY SETTLING ALL THE SAME ON BEHALF O F GFA AND GENERALLY MAKING ALL REQUIRED ARRANGEMENTS FOR A SMOOTH AND PEACEFUL TAK E OVER OF THE ESTATE BY GFA AS PURCHASER AND OWNER THEREOF. 4. SULAIMAN WILL BE RESPONSIBLE FOR MEETING ALL EX PENSES INCLUDING LEGAL CHARGES AND OTHER OUTGOINGS. 5. IT HAS ALSO BEEN MUTUALLY AGREED, THAT ALL PAYM ENTS RECEIVED FOR THEIR SERVICES WOULD BE ROUTED THROUGH VG AND SHARED BETWEEN THEM IN THE MANNER HEREIN PROVIDED. THE PARTIES CONFIRM, IN THIS CONNECTION THAT THEY HAVE IN THIS MANNER RECEIVED OR WILL RECEIVE A TOTAL AMOUNT OF RS.20,00 ,00,000 (RUPEES TWENTY CRORES ONLY) FROM GFA AS COMMISSION. OF THE ABOVE AMOUNT, VG HAS PAID UNDER INSTRUCTIONS FROM AND ON ACCOUNT OF SULAIMAN, A SUM OF RS.8,00,00,000/- (RUPEES EIGHT CRORES ONLY) TO MR. BENNY JOSEPH TO HA NDLE AND TO MEET EXPENSES FOR SETTLEMENT OF LABOUR. OUT OF THE BALANCE COMMI SSION OF RS.12,00,00,000 (RUPEES TWELVE CRORES ONLY) VG WILL RETAIN A SUM OF RS.7,12,00,000/- (RUPEES SEVEN CRORES TWELVE LAKHS ONLY) INCLUDING THE TDS D EDUCTED BY GFA, AS HIS SHARE AND PAY SULAIMAN THE BALANCE AMOUNT OF RS.4,8 8,00,000/- (RUPESS FOUR CRORES EIGHTY EIGHT LAKHS ONLY). SUCH PAYMENT WILL E VIDENCE A FULL AND FINAL SETTLEMENT OF ACCOUNTS IN RESPECT OF THIS VENTURE B ETWEEN THE PARTIES AND NEITHER PARTY WILL THEREAFTER HAVE ANY MANNER OF CLAIMS OR DEMANDS WHATSOEVER AGAINST EACH OTHER. AS PER THE AGREEMENT SHRI VARKEY GEORGE TRANSFERRED RS.8.00 CRORES TO THE ACCOUNT OF SHRI BENNY JOSEPH. SUBSEQUENTLY HE TRANSFERRED THE BALANCE AMOUNT OF RS.4.88 CRORES ALSO TO THE ACCOUNT OF SHRI BENNY JOSEPH. IN TURN, SHRI BENNY JOSEPH TRANSFERRED I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 42 RS.4.88 CRORES TO THE ASSESSEES ACCOUNT. AFTERWAR DS, THE ASSESSEE TRANSFERRED BACK A SUM OF RS.2,09,90,000/- TO SHRI BENNY JOSEPH. 40.2 THE ASSESSEE EXPLAINED THAT HE WAS RESPONSIBL E FOR SETTLING PENDING LABOUR DISPUTES AND ALSO FOR ENSURING SMOOTH AND PEACEFUL TAKEOVER OF THE ESTATE BY M/S GOSPEL FOR ASIA. HE WAS ALSO RESPONSIBLE FOR MEETI NG LEGAL AND OTHER CHARGES. ACCORDINGLY HE HAS NOMINATED SHRI BENNY JOSEPH FOR COMPLETING THE LABOUR SETTLEMENT. ACCORDINGLY SHRI VARKEY JOSEPH TRANSFERRED RS.8.00 CRORES TO THE ACCOUNT OF SHRI BENNY JOSEPH. THE ASSESSEE ALSO LATER TRANSFERRED A SUM OF RS.2.09 CRORES TO HIS ACCOUNT. THUS THE TOTAL AMOUNT RECEIVED BY SHRI BENNY JOSEPH WAS RS.10.09 CRORES, WHICH WAS SPENT BY HIM AS UNDER:- PAYMENT FOR LABOUR SETTLEMENT 9,54,54,134 SETTLEMENT EXPENSES 15,35,866 ------------------ 9,69,90,000 ========= IN THE SWORN STATEMENT TAKEN FROM SHRI BENNY JOSEPH , HE AFFIRMED THE ABOVE TRANSACTIONS AND AGREED TO OFFER THE BALANCE AMOUNT TO THE EXTENT OF RS.29,53,877/-, THAT WAS AVAILABLE IN HIS BANK ACCOUNT, AS HIS INCO ME. THE ASSESSEE ALSO POINTED OUT THAT THE VOUCHERS FOR PAYMENT OF RS.9.54 CRORES TO THE LABOURERS FORMED PART OF SEIZED RECORDS. HE FURTHER SUBMITTED THAT THE LABOUR PAYM ENTS WERE EFFECTED THROUGH THE EMPLOYEES OF M/S HARRISONS MALAYALAM LTD, SINCE NEI THER THE PURCHASER NOR THE ASSESSEE/SHRI BENNY JOSEPH HAVE DIRECT CONTACT WITH THE LABOURERS. HENCE THE SUM OF RS.8.00 CRORES WAS WITHDRAWN FROM ICICI BANK, EDAPAL LY BRANCH BY WAY OF CASH ALONG WITH EMPLOYEES OF M/S RPG ENTERPRISES (A GROUP CONCE RN OF M/S HARRISONS MALAYALAM LTD) VIZ., SHRI ANIL SANGANERIA AND SHRI HEMAN GOEN KA AND THE SAME WAS HANDED OVER TO THE ABOVE SAID TWO PERSONS. IN SUPPORT OF THIS, IT WAS SUBMITTED THAT THE VIDEO CAMERA RECORDING OF THE CHEST BRANCH OF ICICI BANK MAY BE REFERRED TO. IT WAS ALSO SUBMITTED THAT THE ABOVE SAID TWO PERSONS WERE STAY ING IN TAJ MALABAR HOTEL ON THAT DATE. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 43 40.3 THE AO EXAMINED THE EXPLANATIONS OF THE AS SESSEE. IN THIS REGARD HE CONDUCTED ENQUIRIES WITH SHRI T.P. MATHEW, GENERAL MANAGER AND SHRI T.C. PREMARAJAN, ASSISTANT GENERAL MANAGER OF CHERUVALLY ESTATE. BOT H OF THEM STATED THAT NO AMOUNT WAS PAID TO THE WORKERS AS COMPENSATION. THE AO AL SO CONDUCTED ENQUIRIES WITH TEN LABOURERS AND THEY ALSO DENIED RECEIPT OF ANY COMPE NSATION. THE AO ALSO NOTICED THAT THEIR SIGNATURE DID NOT TALLY WITH THE SIGNATURES F OUND IN THE VOUCHERS. THE AO ISSUED SUMMONS TO SHRI ANIL SINGANERIA AND HE ALSO DENIED THE SUBMISSIONS MADE BY SHRI BENNY JOSEPH/ASSESSEE. THE SUMMONS ISSUED TO SHRI HEMANT GOENKA RETURNED BACK UN-SERVED. SUBSEQUENTLY, THE AO AGAIN CONDUCTED E NQUIRIES WITH 14 LABOURERS, WHICH INCLUDED 6 LABOURERS WITH WHOM ENQUIRIES WERE CONDU CTED EARLIER. THEY ALSO DENIED THE RECEIPT OF COMPENSATION AND ALSO DENIED THE SIGNATU RE RECORDED IN THE VOUCHERS. THE AO EXAMINED THE VOUCHERS OF COMPENSATION PAYMENTS A ND NOTICED CERTAIN DISCREPANCIES LIKE DUPLICATION OF NAMES, MISMATCH O F THE SIGNATURE BETWEEN THE NAME AND SIGNATURE, TYPOGRAPHICAL ERRORS ETC. HENCE, TH E AO CAME TO THE CONCLUSION THAT THE VOUCHERS SEIZED DURING THE COURSE OF SEARCH IS A BO GUS DOCUMENT. 40.4 THE AO INITIALLY FORWARDED THE COPIES OF STA TEMENT RECORDED FROM 10 LABOURERS TO THE ASSESSEE. HOWEVER, HE DID NOT FORWARD THE STAT EMENT RECORDED FROM 14 LABOURERS SUBSEQUENTLY. WITH REGARD TO THE STATEMENT OF 10 W ORKERS ALSO, THE ASSESSEE SOUGHT FOR AN OPPORTUNITY TO CROSS EXAMINE THEM, BUT THE A O DID NOT PROVIDE THE SAME TO THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE COMPENSAT ION AMOUNT WAS PAID TO ABOUT 500 WORKERS AND HE WILL BE IN A POSITION TO PRODUCE MANY OF THEM THROUGH SHRI BENNY JOSEPH. BUT, THE AO DID NOT ACCEDE TO THE SAID REQ UEST. THE AO ALSO DID NOT TAKE ANY STEP TO VERIFY FROM THE CHEST BRANCH OF ICICI BANK TO FIND OUT WHETHER THE SUM OF RS.8.00 CRORES WAS HANDED OVER TO SHRI ANIL SINGANE RIA AND SHRI HEMANT GOENKA. HE ALSO DID NOT VERIFY WITH TAJ MALABAR HOTEL TO ASCER TAIN ABOUT THEIR STAY IN THE HOTEL. ACCORDINGLY, THE ASSESSEE CONTENDED BEFORE LD CIT(A ) THAT THERE IS GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE ON THE PART OF THE AO IN PLACING RELIANCE ON MATERIAL WHICH WERE NOT CONFRONTED TO THE ASSESSEE AND IN NOT ACCE PTING THE PAYMENT OF COMPENSATION OF RS.9.54 CRORES,. THE AO ALSO ASSESSED RENTAL IN COME OF RS.1,68,000/- AND THE PEAK CREDIT DEPOSIT AMOUNT OF RS.2.93 CRORES. HOWEVER, THE AO DID NOT INDICATE THESE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 44 ADDITIONS IN HIS PRE-ASSESSMENT PROPOSAL SENT ON 29 .12.2008. HENCE, THE ASSESSEE SUBMITTED THAT THERE IS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE WITH REGARD TO THESE ADDITIONS ALSO. THE LD CIT(A) ACCEPTED THE SAID CO NTENTIONS OF THE ASSESSEE AND ACCORDINGLY QUASHED THE ASSESSMENT ORDER. 40.5 IN THE ORIGINAL RETURN OF INCOME FILED U/S 139(1) OF THE ACT, THE ASSESSEE HAD DECLARED THE GROSS AMOUNT OF RS.12.88 CRORES AS COM MISSION RECEIPTS AND DEDUCTED THE EXPENSES INCURRED TOWARDS LABOUR SETTLEMENT AND OTH ER EXPENSES. HOWEVER, IN THE RETURN FILED IN RESPONSE TO THE NOTICE ISSUED U/S 1 53A OF THE ACT, THE ASSESSEE DECLARED GROSS COMMISSION RECEIPTS AT RS.4.88 CRORES ONLY. FROM THAT AMOUNT, THE ASSESSEE DEDUCTED THE PAYMENT OF RS.2.09 CRORES MADE TO SHRI BENNY JOSEPH AND OTHER EXPENSES. ACCORDING TO THE ASSESSEE, HE DID NOT CLA IM MANY EXPENSES WHICH WERE CLAIMED IN THE ORIGINAL RETURN OF INCOME. WHEN THE AO QUESTIONED ABOUT THE CHANGE IN THE GROSS COMMISSION RECEIPTS, THE ASSESSEE SUBMITT ED THAT THE RETURN FILED BY HIM U/S 139(1) WAS A DEFECTIVE RETURN AND THE AO SHOULD NOT TAKE COGNIZANCE OF THE SAME. THE ASSESSEE SUBMITTED THAT HE DID NOT ATTACH BALANCE S HEET ALONG WITH THE ORIGINAL RETURN OF INCOME, WHICH MAKES THE RETURN A DEFECTIVE ONE, AS PER SEC. 139(9)(E) OF THE ACT. ACCORDINGLY HE SUBMITTED THAT THE ORIGINAL RETURN O F INCOME SHOULD BE CONSIDERED AS NON-EST IN THE EYES OF LAW AND THE ASSESSEE SHOULD BE TREATED AS HAVING NOT FILED RETURN OF INCOME AS PER THE DECISION OF HONBLE KERALA HIG H COURT IN THE CASE OF CIT VS. KALPAKA TRANSPORT CO. LTD. (204 CTR (KER) 86). ACC ORDINGLY IT WAS SUBMITTED THAT THE AO SHOULD TAKE THE GROSS COMMISSION RECEIPTS AT RS. 4.88 CRORES ONLY AND NOT RS.12.88 CRORES. THE AO DID NOT ACCEPT THE SAID CONTENTIONS , BUT THE LD CIT(A) ACCEPTED THE SAME. 40.6 ACCORDINGLY, THE AO DETERMINED THE GROSS C OMMISSION RECEIPTS AT RS.12.88 CRORES AND ASSESSED THE SAME WITHOUT GIVING ANY DED UCTION FOR EXPENSES. IN THE PRECEDING YEAR, THE ASSESSEE HAD DECLARED RENTAL IN COME FROM CASHEW FACTORY. IN THIS YEAR, THE ASSESSEE DID NOT DISCLOSE THE SAME. HENC E, THE AO ASSESSED RENTAL INCOME OF RS.1,68,000/- AS IN LAST YEAR. THE AO ALSO ASSESSE D THE PEAK CREDIT AMOUNT IN HIS BANK ACCOUNTS, WHICH WAS WORKED OUT AT RS.2.98 CRORES. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 45 41 AS STATED EARLIER, THE LD CIT(A) ALSO ADJUDICA TED THE ISSUED URGED BY THE ASSESSEE ON MERITS OF THE ADDITION. THE LD CIT(A) HELD THAT THE ASSESSEE HAS RECEIVED ONLY RS.4.88 CRORES, OUT OF WHICH HE PAID BACK RS.2,09,9 0,000/- TO SHRI BENNY JOSEPH. THE LD CIT(A) DELETED THE ADDITION RELATING TO RENTAL I NCOME OF RS.1,68,000/-. WITH REGARD TO THE PEAK CREDIT ADDITION OF RS.2.93 CRORES, THE LD CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE THAT THE BANK DEPOSITS REPRESENT HIS R EAL ESTATE TRANSACTIONS. ACCORDINGLY, THE LD CIT(A) HELD THAT THERE IS NO REASON TO MAKE AN ADDITION OF RS.2.93 CRORES. 42 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD FOR THIS YEAR. IN THE GROUNDS OF APPEAL, THE REVENUE IS CONTESTING THAT T HE LD CIT(A) WAS NOT RIGHT IN ENTERTAINING THE APPEAL FILED BY THE ASSESSEE, SINC E THE ASSESSEE DID NOT PAY THE SELF ASSESSMENT TAX. HOWEVER, ACCORDING TO THE LD CIT(A) , THE TAX DUE AS PER RETURN OF INCOME WAS PAID BY WAY OF SELF ASSESSMENT TAX AS WE LL AS BY WAY OF ADJUSTMENT AGAINST THE CASH AND BANK BALANCES SEIZED DURING THE COURSE OF SEARCH. ACCORDINGLY, THE LD CIT(A) WAS SATISFIED WITH THE PAYMENT OF TAX AND HA S ADMITTED THE APPEAL FOR HEARING. BEFORE US, NO MATERIAL WAS PLACED BY THE DEPARTMENT TO SUBSTANTIATE ITS CONTENTIONS. ACCORDINGLY WE REJECT THE GROUNDS URGED BY THE REVE NUE RELATING TO THE CLAIM OF NON- PAYMENT OF SELF ASSESSMENT TAX. 43 THE NEXT ISSUE RELATES TO THE DECISION OF LD CIT(A) IN HOLDING THAT THE RETURN FILED BY THE ASSESSEE U/S 139(1), BEING DEFECTIVE, SHOULD HAVE BEEN IGNORED BY THE AO. ACCORDING TO THE ASSESSEE, HE DID NOT ATTACH THE BA LANCE SHEET WITH THE RETURN OF INCOME AS PER THE REQUIREMENT OF SEC. 139(9)(E) OF THE ACT, WHICH HAS RENDERED THE RETURN FILED U/S 139(1) AS DEFECTIVE ONE. ACCORDIN GLY, IT WAS CONTENDED THAT THE AO SHOULD NOT HAVE TAKEN COGNIZANCE OF THE SAME. THE ASSESSEE IS RAISING THIS CONTENTION FOR THE REASON THAT HE HAD DECLARED THE GROSS COMMI SSION RECEIPTS AT RS.12.88 CRORES IN THE ORIGINAL RETURN OF INCOME AND AT RS.4.88 CRORES IN THE RETURN OF INCOME FILED IN RESPONSE TO THE NOTICE ISSUED U/S 153A OF THE ACT. WE HAVE ALREADY NOTICED THAT THE LD CIT(A) HAS ACCEPTED THIS CONTENTION OF THE ASSESSEE . I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 46 43.1 HOWEVER, A CAREFUL READING OF PROVISIONS O F SEC. 139(9) SHOWS THAT THE SAID PROVISION SHALL BECOME EFFECTIVE ONLY IF THE AO CON SIDERS THAT THE RETURN OF INCOME FURNISHED BY THE ASSESSEE IS DEFECTIVE. THE SEARCH TOOK PLACE IN THE HANDS OF THE ASSESSEE ON 13.12.2006 AND HENCE THE ASSESSMENT OF THE INSTANT YEAR WAS PENDING AS ON THE DATE OF INITIATION OF SEARCH. HENCE IT DOES NOT FALL IN THE CATEGORY OF CONCLUDED ASSESSMENTS. AS PER THE SECOND PROVISO TO SEC. 153A , THE PENDING ASSESSMENT SHALL ABATE AND THE ASSESSMENT HAS TO BE NECESSARILY DONE UNDER THE PROVISIONS OF SEC. 153A OF THE ACT. SINCE THE ASSESSMENT MADE U/S 153A FOR THIS YEAR IS ORIGINAL ASSESSMENT, IN OUR VIEW, THE AO IS ENTITLED TO CONSIDER ALL THE DO CUMENTS AND INFORMATION RELATING TO THE INSTANT YEAR THAT COMES TO HIS NOTICE, FOR THE PURPOSE OF MAKING ASSESSMENT. IN THAT CASE, THE DOCUMENTS FILED ALONG WITH THE RETUR N OF INCOME FILED U/S 139 OF THE ACT ALSO, IN OUR VIEW, CAN BE CONSIDERED BY THE AO FOR THE PURPOSE OF MAKING ASSESSMENT U/S 153A OF THE ACT. THE LD CIT(A) HAS HELD THAT T HE ASSESSMENT IS TO BE VIEWED FROM THE POINT OF VIEW OF RETURN FILED U/S 153A OF THE A CT. EVEN THOUGH THE STARTING POINT OF THE ASSESSMENT MAY BE THE RETURN OF INCOME FILED U/ S 153A OF THE ACT, IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE AO IS ENTITLED TO CONSIDER THE DOCUMENTS FILED ALONG WITH RETURN OF INCOME FILED U /S 139 OF THE ACT ALSO. ACCORDINGLY, THE ORDER OF LD CIT(A) STANDS MODIFIED ON THIS ISSU E. 44. THE LD CIT(A) HAS QUASHED THE ASSESSMENT OR DER IN TOTO FOR VIOLATION OF NATURAL JUSTICE. WE HAVE ALREADY NOTICED THAT THE AO DID N OT PROVIDE OPPORTUNITY TO CROSS EXAMINE 10 WORKERS WHO GAVE STATEMENTS AGAINST THE ASSESSEE. FURTHER THE AO DID NOT FURNISH THE STATEMENTS TAKEN FROM 14 WORKERS AND AL SO DID NOT CONFRONT THE REPLY FILED BY ANIL SINGANERIA. HE ALSO DID NOT FURNISH THE ST ATEMENTS TAKEN FROM THE MANAGERS OF HARISSON MALAYALAM LTD. ALL THESE ITEMS RELATE TO THE COMMISSION INCOME EARNED BY THE ASSESSEE ON SALE OF CHERUVELI ESTATE. WE NOTICE THAT THE AO, BESIDES DETERMINING THE COMMISSION INCOME FROM SALE OF CHERUVELI ESTATE, HAS ALSO ASSESSED THE RENTAL INCOME AND THE INCOME BY WAY OF PEAK CREDIT OF BANK DEPOSITS AND ACCORDING TO THE ASSESSEE, HE WAS NOT ASKED QUERIES ABOUT THE RENTAL INCOME. THE DEPARTMENTS CONTENTION IS THAT THE LD CIT(A) IS NOT CORRECT IN QUASHING THE ASSESSMENT IN TOTO. WE NOTICE THAT , IN THE EARLIER YEARS, THE LD CIT(A) H AS SOUGHT FOR REMAND REPORT FROM THE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 47 ASSESSING OFFICER AND ACCORDINGLY, IN THIS YEAR ALS O, IN OUR VIEW, THE LD CIT(A) COULD HAVE CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER AFTER PROVIDING THE OPPORTUNITY OF CROSS EXAMINATION AND ALSO AFTER FUR NISHING THE RELEVANT DOCUMENTS, SINCE THE POWER OF LD CIT(A) IS CO-TERMINUS WITH TH AT OF THE ASSESSING OFFICER. AT THE SAME TIME, IN OUR VIEW, IT WAS ALSO NOT FAIR ON THE PART OF THE AO IN PLACING RELIANCE ON THE DOCUMENTS, WHICH WERE NOT PUT TO THE ASSESSEE. HOWEVER, OUR FURTHER DISCUSSIONS WOULD SHOW THAT THE ABOVE SAID DOCUMENTS MAY NOT HA VE MUCH RELEVANCE TO THE ISSUE UNDER CONSIDERATION. HENCE, WE ARE UNABLE TO AGREE WITH THE DECISION OF LD CIT(A) IN QUASHING THE ASSESSMENT IN TOTO. ACCORDINGLY, WE S ET ASIDE THIS DECISION OF THE FIRST APPELLATE AUTHORITY. 45. WE SHALL NOW TAKE UP THE ISSUES CONTESTED ON MERITS OF ADDITION. THE AO HAS ASSESSED A SUM OF RS.12.88 CRORES AS COMMISSION INC OME OF THE ASSESSEE. THOUGH THE ASSESSEE DECLARED THE GROSS RECEIPTS AS RS.12.88 CR ORES IN THE RETURN OF INCOME FILED U/S 139 OF THE ACT, HE DECLARED ONLY RS.4.88 CRORES AS GROSS RECEIPTS IN HIS 153A RETURN AND DEDUCTED THERE FROM THE AMOUNT OF RS.2.09 CRORES PA ID BACK TO SHRI BENNY JOSEPH. WE HAVE ALREADY DISCUSSED THE FACTS RELATING THERETO I N THE PRECEDING PARAGRAPHS. WE HAVE ALREADY NOTICED THAT THE AO HAS PLACED RELIANCE ON THE STATEMENT ATTACHED TO THE ORIGINAL RETURN OF INCOME FILED U/S 139(1) OF THE A CT, THE STATEMENTS RECORDED FROM SOME OF THE WORKERS, THE STATEMENT RECORDED FROM TH E MANAGERS OF M/S HARRISONS MALAYALAM LTD AND THE LETTER WRITTEN BY SHRI ANIL S IGANERIA TO REJECT THE CONTENTIONS OF THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE ADI (INV) HAS RECORDED A STATEMENT FROM SHRI BENNY JOSEPH ON 05-02-2007 AND IN THE SAID STA TEMENT HE HAS AFFIRMED THE EXPLANATIONS GIVEN BY THE ASSESSEE, I.E., HE HAS CO NFIRMED ABOUT THE PAYMENT OF COMPENSATION TO WORKERS TO THE TUNE OF RS.9.54 CROR ES, INCURRING OF SETTLEMENT EXPENSES, RECEIPT OF RS.8.00 CRORES AND RS.2.09 CRO RES FROM THE ASSESSEE ETC. SUBSEQUENTLY SHRI BENNY JOSEPH HAS ALSO WRITTEN A L ETTER WITH REGARD TO THE RECEIPT OF RS.8.00 CRORES, HOW IT WAS WITHDRAWN, TO WHOM IT WA S HANDED OVER ETC. HOWEVER, THE AO HAS REJECTED THE STATEMENT AND LETTER OF SHRI BE NNY JOSEPH ON A SIMPLE REASONING THAT HE WAS ALSO A PARTY IN THE TRANSACTIONS. WE W ONDER AS TO HOW THE AO CAN REJECT THE SAID STATEMENT AND LETTER OF SHRI BENNY JOSEPH SO SIMPLY. THERE SHOULD NOT BE ANY I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 48 DISPUTE THAT THE PARTIES TO ANY TRANSACTION ALONE C AN CONFIRM ABOUT THE NATURE OF TRANSACTIONS. 45.1 ON ASSIMILATION OF FACTS SURROUNDING THIS ISSUE, FOLLOWING FACTS EMERGE OUT:- (A) THE ASSESSEE AND SHRI VARKEY GEORGE HAVE FINA LIZED THE DEAL OF SALE OF CHERUVELI ESTATE BY M/S HARRISONS MALAYALAM LTD AND M/S GOSPEL FOR ASIA FOR A CONSIDERATION OF RS.63.00 CRORES. (B) THEY HAVE RECEIVED A SUM OF RS.20.00 CRORES FROM M/S GOSPEL FOR ASIA. THE SAID PAYMENT WORKS OUT TO 31.74% OF THE SALE CONSID ERATION. IN THE ASSESSMENT ORDER RELATING TO THE ASSESSMENT YEAR 2002-03, THE AO HIM SELF HAS OBSERVED THAT THE GENERAL RATE OF COMMISSION IN REAL ESTATE TRANSACTIONS WORK OUT TO 2% TO 5%. HENCE, LOGICALLY THE SUM OF RS.20.00 CRORES REPRESENTS NOT ONLY COMM ISSION, BUT ALSO SOMETHING MORE THAN THAT. (C) AS PER CLAUSE 3 OF THE AGREEMENT ENTERED B ETWEEN THE ASSESSEE AND SHRI VARKEY JOSEPH, THE ASSESSEE WILL BE RESPONSIBLE FOR DEALING WITH ALL PENDING LABOUR AND STAFF ISSUES AND DISPUTES AND WILL DULY SETTLE THE SAME ON BEHALF OF M/S GOSPEL FOR ASIA. AS PER CLAUSE 4, THE ASSESSEE SHALL BE RESPONSIBLE FOR MEETING ALL EXPENSES. IN CLAUSE 5, IT IS SPECIFICALLY STATED THAT A SUM OF RS.8.00 CRORES WAS GIVEN TO MR. BENNY JOSEPH TO HANDLE AND TO MEET EXPENSES FOR SETTLEMENT OF LABOU R. (D) IT APPEARS THAT THE AO DID NOT CONDUCT ENQUIR IES WITH M/S GOSPEL FOR ASIA, WHO HAS PAID RS.20.00 CRORES TO SHRI VARKEY JOSEPH. THE AO ALSO DID NOT CONDUCT ENQUIRIES WITH SHRI VARKEY JOSEPH ALSO. THE STATEM ENT GIVEN BY SHRI BENNY JOSEPH WAS ALSO NOT REBUTTED, BUT ONLY BRUSHED ASIDE. (E) DURING THE COURSE OF SEARCH, THE SEARCH OFFI CIALS HAVE SEIZED VOUCHERS EVIDENCING PAYMENT OF RS.9.54 CRORES AS COMPENSATIO N TO THE WORKERS. ACCORDING TO THE ASSESSEE, THE PAYMENT WAS MADE TO ABOUT 500 WOR KERS. HOWEVER, THE AO HAS CONDUCTED ENQUIRIES WITH ABOUT 18 WORKERS ONLY, WHO HAVE DENIED THE RECEIPT OF ANY COMPENSATION. HOWEVER, THE ASSESSEE WAS READY TO P RODUCE AS MANY WORKERS AS REQUIRED TO SUBSTANTIATE THE CLAIM, BUT THE SAID RE QUEST WAS NOT ACCEDED TO. (F) THE ASSESSEE HAS ALSO CONTENDED THAT IT WOULD B E UNREASONABLE TO SUSPECT THE GENUINENESS OF THE VOUCHERS ON THE GROUND THAT THEY ARE BOGUS ONE. THE ASSESSEE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 49 FURTHER SUBMITTED THAT THESE PAYMENTS WERE MADE AND VOUCHERS WERE OBTAINED PRIOR TO THE COMMENCEMENT OF SEARCH OPERATIONS. THE LD A.R C ONDUCTED IT WOULD BE UNREASONABLE TO PRESUME THAT THE ASSESSEE HAS PREPA RED THE VOUCHERS VISUALIZING SEARCH OPERATIONS, AS NO ONE CAN PREDICT SUCH OPERA TION. ACCORDING TO THE ASSESSEE, NEITHER HE NOR SHRI BENNY JOSEPH HAS DIRECT CONTACT WITH WORKERS. HENCE, THEY HAD TO DEPEND UPON THE OFFICIALS OF M/S HARRISONS MALAYALA M LTD TO DISBURSE THE SETTLEMENT AMOUNTS. ACCORDINGLY THE MONEY WAS HANDED OVER TO THEM AND THEY HAVE ONLY DISBURSED THE AMOUNTS, OBTAINED VOUCHERS AND HANDED OVER TO SHRI BENNY JOSEPH, WHO IN TURN, HANDED OVER THE SAME TO THE ASSESSEE. ACC ORDINGLY, IT WAS SUBMITTED THAT THE ASSESSEE CANNOT BE FOUND FAULT WITH THE DISCREPANCI ES/MISTAKES IN THE PREPARATION OF VOUCHERS. IN OUR VIEW, THERE IS FORCE IN THE SAID SUBMISSIONS. HENCE, IN OUR VIEW, THE ASSESSEE CANNOT BE FOUND FAULT WITH THE DISCREPANCI ES OR MISTAKES NOTICED IN THE VOUCHERS. (G) ACCORDING TO THE ASSESSEE, SINCE THEY HAD TO DEPEND UPON THE OFFICERS OF M/S HARRISONS MALAYALAM LTD FOR SETTLING THE LABOUR SETTLEMENTS, THE SUM OF RS.8.00 CRORES WAS DRAWN FROM CURRENCY CHEST BRANCH OF ICIC I BANK IN THE PRESENCE OF THE OFFICIALS OF M/S RPG ENTERPRISES (GROUP CONCERN OF M /S HARRISONS MALAYALAM LTD) AND THE SAME WAS HANDED OVER TO THEM. WHEN THIS FACT W AS NOT ACCEPTED BY THE AO, BOTH THE ASSESSEE AS WELL AS SHRI BENNY JOSEPH HAS REQUE STED THE AO TO EXAMINE THE VIDEO RECORDING OF ICICI BANK. THEY ALSO STATED THAT SHR I ANIL SINGANERIA PURCHASED FOUR TRUNK BOXES FROM M/S WITCO AGENCIES AND FURTHER THE Y STAYED IN TAJ MALABAR HOTEL. HOWEVER, WE NOTICE THAT THE AO DID NOT EXAMINE THE ABOVE SAID EVIDENCES. INSTEAD HE HAS ACCEPTED THE LETTER WRITTEN BY SHRI ANIL SINGAN ERIA DENYING THE TRANSACTIONS. HOWEVER, IT IS PERTINENT TO NOTE THAT SHRI HEMANT G OENKA, WHO WAS ACCOMPANYING SHRI ANIL SINGANERIA IN THIS DEAL, DID NOT RESPOND TO TH E SUMMONS ISSUED BY THE AO, WHICH CASTS SHADOW OF DOUBT ON THESE TWO PERSONS AND STRE NGTHENS THE SUBMISSIONS MADE BY THE ASSESSEE AND SHRI BENNY JOSEPH. (G) IT IS PERTINENT TO NOTE THAT ALL THE MONEY TR ANSACTIONS HAVE BEEN ROUTED THROUGH THE BANK ACCOUNTS. SHRI VARKEY GEORGE HAS TRANSFERRED RS.12.88 CRORES TO THE ACCOUNT OF SHRI BENNY JOSEPH, WHO IN TURN TRANSFERR ED RS.4.88 CRORES TO THE ACCOUNT OF THE ASSESSEE. ACCORDING TO THE ASSESSEE, THE BALAN CE AMOUNT OF RS.8.00 CRORES WAS I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 50 WITHDRAWN FROM THE BANK HANDED OVER TO SHRI ANIL SI NGANERIA AND SHRI HEMANT GOENKA. OUT OF RS.4.88 CRORES RECEIVED, THE ASSESSEE TRANSF ERRED BACK RS.2.09 CRORES TO SHRI BENNY JOSEPH. THUS, SHRI BENNY JOSEPH RECEIVED A S UM OF RS.10.09 CRORES. ALL THESE TRANSACTIONS WERE CONFIRMED BY SHRI BENNY JOSEPH IN THE SWORN STATEMENT TAKEN BY THE ADI FROM HIM ON 05-02-2007, I.E., DURING THE COURSE OF SEARCH PROCEEDINGS. WE NOTICE THAT THE AO HAS SIMPLY BRUSHED ASIDE THESE BANK TRA NSACTIONS ON THE REASONING THAT THE VERSION OF SHRI BENNY JOSEPH IS NOT RELIABLE, SINCE HE WAS ALSO A PARTY TO THE TRANSACTIONS. WE NOTICE THAT THE AO DID NOT TAKE A NY STEP TO DISPROVE THE BANK TRANSACTIONS OR TO PROVE THAT THE FUNDS WERE DIVERT ED FOR ANY OTHER PURPOSE. 45.2 THE BANK ACCOUNT OF THE ASSESSEE SHOWS TH AT HE HAS RECEIVED ONLY RS.4.88 CRORES FROM SHRI VARKEY GEORGE THROUGH SHRI BENNY J OSEPH. IT ALSO SHOWS THAT HE RETURNED BACK A SUM OF RS.2.09 CRORES TO SHRI BENNY . IN THE SWORN STATEMENT, SHRI BENNY JOSEPH HAS ALSO CONFIRMED THESE TRANSACTIONS. IN THE INSTANT CASE, SHRI BENNY JOSEPH HAS ALSO CONFIRMED THAT HE HAS RECEIVED RS.8 .00 CRORES FROM SHRI VARKEY GEORGE AND THE SAME WAS WITHDRAWN AND HANDED OVER TO THE O FFICIALS CONNECTED WITH M/S HARRISONS MALAYALAM LTD FOR DISBURSING TO THE WORKE RS. ACCORDING TO THE ASSESSEE, THE WORKERS WERE PAID A SUM OF RS.9.54 CRORES AND EVIDE NCES IN THAT REGARD WAS FOUND DURING THE COURSE OF SEARCH. HENCE, FOR THE DEFICI ENCIES, IF ANY, IN THE VOUCHERS AND ALSO FOR THE DENIAL OF RECEIPT OF COMPENSATION BY A MINUSCULE PERCENTAGE OF WORKERS, IN OUR VIEW, THE ASSESSEE CANNOT BE FOUND FAULT WITH, SINCE HE OR SHRI BENNY JOSEPH DID NOT DIRECTLY INVOLVE IN THE DISBURSEMENT OF COMPENS ATION. AS STATED EARLIER, THE AO HAS NOT ACCEDED TO THE REQUEST OF THE ASSESSEE TO PRODU CE AS MANY NUMBERS OF WORKERS AS THE AO MAY REQUIRE. HENCE, THE TRANSACTIONS FOUND IN THE BANK ACCOUNTS OF THE ASSESSEE AND IN THE ACCOUNT OF SHRI BENNY JOSEPH AN D THE PAYMENT VOUCHERS UNEARTHED DURING THE COURSE OF SEARCH, IN OUR VIEW, ACTUALLY SUPPORT THE CASE OF THE ASSESSEE. 45.3 THE AO HAS POINTED OUT THAT THE ASSESSEE H AS SHOWN THE GROSS COMMISSION RECEIPTS AS RS.12.88 CRORES IN THE RETURN OF INCOME FILED U/S 139(1) OF THE ACT. THE ASSESSEE HAS POINTED OUT THAT HE HAS ALSO CLAIMED R S.9.54 CRORES AS EXPENSES IN THE SAID PROFIT AND LOSS ACCOUNT FILED ALONG WITH THE O RIGINAL RETURN OF INCOME. IN THE RETURN I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 51 FILED U/S 153A OF THE ACT, THE ASSESSEE HAS DECLARE D ONLY RS.4.88 CRORES AS GROSS RECEIPTS AND DID NOT CLAIM THE AMOUNT OF RS.9.54 CR ORES AS EXPENSE. THUS, IT IS SEEN THAT THE ASSESSEE HAS PREPARED THE PROFIT AND LOSS ACCOUNT IN A DIFFERENT MANNER WHILE FILING THE RETURN OF INCOME U/S 153A OF THE ACT. T HERE SHOULD NOT BE ANY DISPUTE THAT, IN ANY BUSINESS DEAL, ONLY THE INCOME ELEMENT IS TA XABLE. HENCE, WHAT IS REQUIRED TO BE ASCERTAINED IS THE INCOME OF THE ASSESSEE FROM OUT OF THE CHERUVELI ESTATE DEAL. 45.4 ANOTHER PERTINENT POINT THAT SHOULD BE NOTE D IS THAT THE AO HAS PLACED HIS RELIANCE HEAVILY ON THE AGREEMENT ENTERED BETWEEN T HE ASSESSEE AND SHRI VARKEY GEORGE TO CONCLUDE THAT THE SUM OF RS.8.00 CRORES W AS GIVEN TO SHRI BENNY JOSEPH ON BEHALF OF THE ASSESSEE ONLY. OTHERWISE THE BANK TR ANSACTIONS SIMPLY SHOW TRANSFER OF RS.8.00 CRORES FROM THE ACCOUNT OF SHRI VARKEY GEOR GE TO SHRI BENNY JOSEPH. HAVING PLACED RELIANCE SO, THE AO WAS NOT READY TO ACCEPT THE VERY SAME AGREEMENT, WHEREIN IT IS MENTIONED THAT THE SAID PAYMENT IS BEING MADE TO MEET THE EXPENSES OF LABOUR SETTLEMENTS. THIS ACTION OF THE AO IS NOT APPRECIA BLE. 45.5 WE HAVE ALREADY NOTICED THAT THE PAYMENT OF COMPENSATION OF RS.9.54 CRORES CANNOT BE DOUBTED WITH. WE HAVE ALREADY NOTICED TH AT THE ASSESSEE HAS RECEIVED ONLY RS.4.88 CRORES IN HIS BANK ACCOUNT AND REPAID A SUM OF RS.2.09 CRORES. HENCE, IN OUR VIEW, THE NET INCOME OF THE ASSESSEE HAS TO BE COMP UTED BY CONSIDERING THE TRANSACTIONS IN THE BANK ACCOUNT OF THE ASSESSEE. ACCORDINGLY, IN OUR VIEW, THE AO WAS NOT CORRECT IN ASSESSING THE ENTIRE AMOUNT OF RS.12 .88 CRORES IN THE HANDS OF THE ASSESSEE BY TOTALLY DISREGARDING THE PAYMENT MADE F OR SETTLEMENT OF LABOUR DISPUTES AND PAYMENTS MADE TO SHRI BENNY JOSEPH. ACCORDING LY, WE ARE INCLINED TO UPHOLD THE VIEW OF LD CIT(A) ON THIS ISSUE. 46. THE DEPARTMENT HAS CHALLENGED THE DECISION O F LD CIT(A) IN DELETING THE RENTAL INCOME OF RS.1.68 CRORES BEFORE US. HENCE HIS DECI SION ON THIS ISSUE HAS REACHED FINALITY. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 52 47. THE NEXT ISSUE RELATES TO THE ADDITION OF PE AK CREDIT BALANCE IN THE BANK ACCOUNTS OF THE ASSESSEE. THE LD CIT(A) HAS DELETED THE SAM E BY HOLDING THAT THERE IS NO REASON TO MAKE THIS ADDITION, WHEN THE ASSESSEE HAS TRANSACTED HIS REAL ESTATE DEALS THROUGH HIS BANK ACCOUNTS. THE REVENUE IS AGGRIEVE D BY THE SAID DECISION OF LD CIT(A). 47.1 AN IDENTICAL ADDITION OF PEAK CREDIT BALANCE WAS MADE IN THE ASSESSMENT YEAR 2004-05 ALSO. WE HAVE DEALT WITH THE SAME IN DETAI L WHILE CONSIDERING THE APPEAL OF THAT YEAR. ALL THE OBSERVATIONS MADE THEREIN SHALL ALSO APPLY FOR THE YEAR UNDER CONSIDERATION. CONSISTENT WITH THE VIEW TAKEN IN A SSESSMENT YEAR 2004-05, IN THIS YEAR ALSO, WE HOLD THAT THERE IS FORCE IN THE SUBMISSION OF THE ASSESSEE THAT HE HAS ROUTED THROUGH MAJOR PORTION OF SALE PROCEEDS OF REAL ESTA TE BUSINESS AND VEHICLE BUSINESS THROUGH HIS BANK ACCOUNTS. 48. WE SHALL NOW TAKE UP THE APPEAL FILED FOR A SSESSMENT YEAR 2007-08 BY THE DEPARTMENT. THE ASSESSEE DID NOT FILE ANY APPEAL FO R THIS YEAR. IN THIS YEAR, THE ASSESSEE RETURNED A LOSS OF RS.26,87,125/-. THE AO MADE FOLLOWING ADDITIONS:- (A) DISALLOWANCE OF CLAIM OF FEE PAID TO MARKOSE & MARKOSE RS.35,00,000/- (B) DISALLOWANCE OF CLAIM OF PAYMENT MADE TO THOMA S CHACO- RS.25,00,000/- (C) DISALLOWANCE OF CLAIM OF PAYMENT MADE TO CASUA L WORKERS- RS.4,00,000/- (D) ADDITION RELATING TO DIFFERENCE IN PREMIUM INC OME - RS.53,00,000/- (E) ADDITION OF INVESTMENT IN CITY HOSPITALS & MAR IA PARK - RS.40,00,000/- (F) PEAK CREDIT BALANCE IN BANK ACCOUNTS - RS.2,77,45,662/- THE LD CIT(A) DELETED ALL THE ADDITIONS. THE REVEN UE IS ASSAILING THE DECISION OF LD CIT(A) IN RESPECT OF ITEMS (A), (D), (E) AND (F) LI STED ABOVE. IN ADDITION, THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN NOT CONSI DERING THE ENHANCEMENT PROPOSAL GIVEN BY THE AO DURING REMAND PROCEEDINGS. 49 THE FIRST ISSUE RELATES TO THE DISALLOWANCE O F PROFESSIONAL CHARGES OF RS.35.00 LAKHS PAID TO M/S MARKOSE & MARKOSE. THE SAID PAYM ENT WAS MADE IN CONNECTION WITH THE DEALING ENTERED IN RESPECT OF CHERUVALI ESTATE I N THE PRECEDING YEAR. THOUGH THE AMOUNT WAS PAID IN THE PRECEDING YEAR, THE ASSESSEE CLAIMED THE SAME DURING THIS YEAR ON THE PLEA THAT THE TDS THEREON WAS PAID DURING TH E YEAR UNDER CONSIDERATION. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 53 ACCORDING TO THE ASSESSEE, THE SAID DEDUCTION WAS C LAIMED AS PER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, WHICH PROVIDES OF DEDUCTION O F EXPENSES, WHICH WAS DISALLOWED EARLIER UNDER THAT SECTION, IN THE YEAR IN WHICH TH E TDS WAS PAID. THE AO TOOK THE VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION ON LY IF THE SAID EXPENDITURE HAD BEEN DISALLOWED IN ANY OF THE EARLIER YEARS. ACCORDING TO THE AO, THE SUM OF RS.35.00 LAKHS WAS NOT ADDED BACK IN THE ASSESSMENT YEAR 2006-07 A ND HENCE THE SAME CANNOT BE CLAIMED DURING THIS YEAR. ACCORDINGLY, THE AO DISA LLOWED THE CLAIM OF RS.35.00 LAKHS. IN THE REMAND REPORT ALSO, THE AO STOOD BY THE VIEW TAKEN DURING THE ASSESSMENT PROCEEDINGS. 49.1 BEFORE LD CIT(A), THE ASSESSEE SUBMITTED T HAT THE QUESTION OF MAKING DISALLOWANCE U/S 40(A)(IA) OF THE ACT WOULD ARISE O NLY IF THE ASSESSEE HAD CLAIMED THE SAME AS A DEDUCTION WHILE COMPUTING THE INCOME. HE SUBMITTED THAT THE SAID PAYMENT OF RS.35.00 LAKHS WAS NOT CLAIMED AS DEDUCTION AT A LL, SINCE HE DID NOT DEDUCT TAX AT SOURCE FROM THAT PAYMENT IN THAT YEAR. HENCE, INST EAD OF MAKING A CLAIM AND FURTHER MAKING A DISALLOWANCE U/S 40(A)(IA) OF THE ACT, THE ASSESSEE DID NOT CLAIM DEDUCTION. HE FURTHER SUBMITTED THAT HE HAS CLAIMED THE SAME I N THIS YEAR, SINCE THE TAX WAS DEDUCTED AT SOURCE AND PAID DURING THIS YEAR. THE LD CIT(A) ACCEPTED THE SAID CONTENTION AND ACCORDINGLY DELETED THE DISALLOWANCE OF RS.35.00 LAKHS MADE BY THE AO. 49.2 WE HAVE HEARD THE RIVAL SUBMISSIONS ON THI S POINT. WE AGREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT THE QUESTION OF MA KING DISALLOWANCE U/S 40(A)(IA) WOULD ARISE ONLY IF THE RELEVANT EXPENDITURE WAS CL AIMED AS A DEDUCTION. IN THE INSTANT CASE, THE ASSESSEE HAS SUBMITTED THAT HE DID NOT CL AIM THE PAYMENT OF RS.35.00 LAKHS AS DEDUCTION AT ALL IN THE ASSESSMENT YEAR 2006-07. THE SAID ACTION OF THE ASSESSEE WOULD HAVE A NEUTRAL EFFECT, I.E., IT WOULD AMOUNT TO MAKING A CLAIM AND THEREAFTER DISALLOWING THE SAME. HOWEVER, A PERUSAL OF THE S TATEMENT OF ACCOUNT FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 SHOWS THAT THE ASSESSEE HAS MADE CLAIM OF DEDUCTION OF RS.35.00 LAKHS AGAINST THE COMMISSION AND THEREAFTER DISALLOWED THE SAME AND ACCORDINGLY COMPUTED THE TOTAL INCOME AT RS.2,5 1,35,000/-. HENCE, IT APPEARS THAT BOTH THE AO AND THE ASSESSEE HAVE DISCUSSED THE MAT TER WITHOUT VERIFYING THE I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 54 COMPUTATION STATEMENT. THERE IS NO DISPUTE WITH RE GARD TO THE FACT THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE FROM THE ABOVE SAID PAYM ENT DURING THIS YEAR. HENCE, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN DELETING T HE DISALLOWANCE OF RS.35.00 LAKHS. 50. THE NEXT ISSUE RELATES TO THE ADDITION OF P REMIUM INCOME OF RS.53.00 LAKHS. THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. DU RING THIS YEAR, THE ASSESSEE HAD NEGOTIATED PURCHASE AND SALE OF AN ESTATE NAMED SUB RAMANIYAM ESTATE. IT APPEARS THAT THE ASSESSEE FIRST ACQUIRED RIGHT TO ASSIGN TH E SAID ESTATE AND LATER AGREED TO TRANSFER THE SAID RIGHT AT A PREMIUM TO M/S JOHN MA THAI, THOMAS MATHEW MATHAI AND CHANDRAPRAKASH. DURING THE COURSE OF SEARCH, A RE CEIPT WAS FOUND, WHERE FROM IT WAS NOTICED THAT THE ASSESSEE HAD RECEIVED A SUM OF RS. 2.00 CRORES AS PREMIUM IN THE ABOVE SAID DEAL FROM THE BUYERS OF THE ABOVE SAID E STATE. IN THE SAID RECEIPT, IT WAS ALSO MENTIONED THAT THE BALANCE AMOUNT OF RS.1.95 C RORES WILL BE ADJUSTED LATER AGAINST THE SALE OF 130 ACRES OF LAND TO BE EXECUTED LATER. ACCORDING TO THE AO, THE ABOVE SAID DOCUMENT SUGGESTS THAT THE ASSESSEE WAS ENTITLED TO RECEIVE 3.95 CRORES AS PREMIUM. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDING , THE ASSESSEE FILED A COPY OF REVOCATION AGREEMENT DATED 29.1.2007 ENTERED BY THE ASSESSEE WITH THE PROPOSED BUYERS OF SUBRAMANIAM ESTATE. ACCORDING TO THE RECI TALS MADE IN THE REVOCATION AGREEMENT, THE BUYERS AGREED TO COMPLETE THE SALE T RANSACTION WITHIN A PERIOD OF THREE MONTHS FROM 18.9.2006. THE SAID PERIOD WAS LATER E XTENDED UP TO 18.01.2007. SINCE THE LAST DATED MENTIONED TO COMPLETE THE SALE DEED HAS EXPIRED, THE PARTIES HAVE DECIDED TO RESCIND FROM THE AGREEMENT FOR SALE. IT WAS FURTHER STATED IN THE ABOVE SAID REVOCATION AGREEMENT THAT THE BUYERS HAVE GIVEN A S UM OF RS.3.42 CRORES TO THE ASSESSEE. IT IS ALSO STATED THAT THE ASSESSEE (A) HAS GIVEN AN ADVANCE OF RS.70.50 LAKHS AS ADVA NCE TO THE ORIGINAL OWNER OF THE PROPERTY (B) HAS SPENT A SUM OF RS.98.50 LAKHS ON VARIOUS E XPENSES AND (C) HAS REPAID A SUM OF RS.1,55,23,000/- TO THE PR OSPECTIVE BUYERS AS FULL AND FINAL SETTLEMENT OF ALL ADVANCES RECEIVED. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 55 50.1 IN THE RETURN OF INCOME FILED, THE ASSESS EE DECLARED THE RECEIPT OF PREMIUM AMOUNT AT RS.3.42 CRORES AND CLAIMED EXPENSES THERE FROM. SINCE THE RECEIPT UNEARTHED DURING THE COURSE OF SEARCH STATED THE PR EMIUM AMOUNT AS RS.3.95 CRORES AND FURTHER THE AGGREGATE AMOUNT OF THREE DISBURSEM ENTS STATED ABOVE WORKED OUT TO RS. 3.24 CRORES ONLY, THE AO TOOK THE VIEW THAT THE PREMIUM SHOULD BE TAKEN AS RS.3.95 CRORES ONLY. SINCE THE ASSESSEE HAS DECLARED ONLY RS.3.42 CRORES, THE AO TREATED THE DIFFERENCE OF RS.53.00 LAKHS AS INCOME OF THE ASSES SEE. 50.2 IN THE REMAND REPORT SUBMITTED TO LD CIT( A), THE AO WORKED OUT THE DIFFERENCE IN THE PREMIUM RECEIPT AT RS.1.91 CRORES, I.E., IN A TOTALLY DIFFERENT MANNER, AS DISCUSSED BELOW:- (A) AS AGAINST THE AMOUNT OF RS.3.42 CRORES MENT IONED IN THE REVOCATION AGREEMENT, THE ASSESSEE HAS RECEIVED A SUM OF RS.3. 02 CRORES BY WAY OF CHEQUES AND HENCE THE REMAINING AMOUNT OF RS.40.00 LAKHS REMAIN S UNCONFIRMED. HENCE THE AMOUNT OF RS.40.00 LAKHS IS TO BE TREATED AS THE AS SESSEES UNACCOUNTED CASH U/S 68 OF THE ACT. (B) OUT OF RS.3.02 CRORES RECEIVED BY THE ASSESSE E BY WAY OF CHEQUES, HE HAS PAID A SUM OF RS.70.50 LAKHS TO THE ORIGINAL OWNER AS ADVANCE. ONE OF THE PROPOSED BUYERS NAMED SHRI JOHN MATHAI HAS CONFIRMED RECEIPT OF RS.1.02 CRORES ONLY AS REPAYMENT, VIDE HIS LETTER DATED 22.6.2010. THUS, THE ASSESSEE CAN BE SAID TO HAVE SPENT A SUM OF RS.1.72 CRORES ONLY OUT OF THE AMOUN T OF RS.3.02 CRORES. ACCORDINGLY, THE BALANCE AMOUNT OF RS.1.30 CRORES REMAINED WITH THE ASSESSEE AND HENCE THE SAME SHOULD BE TREATED AS ASSESSEES COMMISSION INCOME. (C) THE ORIGINAL OWNER OF SUBRAMANIAM ESTATE NAME D SHRI MAM KASI CHETTIAR, IN HIS LETTER DATED 24.9.2010, HAS CONFIRMED THE RECEI PT OF RS.70.50 LAKHS FROM THE ASSESSEE. HOWEVER, HE HAS STATED THAT HE GAVE A SU M OF RS.21.00 LAKHS TO THE ASSESSEE TOWARDS LABOUR SETTLEMENT. HENCE THE ABOV E SAID SUM OF RS.21.00 LAKHS SHOULD BE TREATED AS ASSESSEES INCOME. (B) ACCORDINGLY, THE AO DETERMINED THE INCOME FRO M THIS DEAL AT RS.191.00 LAKHS (RS.40 + RS.130 + RS.21) AND RECOMMENDED FOR ENHANCEMENT OF INCOME. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 56 50.3 THE LD CIT(A) HELD THAT THE REVOCATION AGRE EMENT IS A VALID DOCUMENT AND IT SHOULD HAVE BEEN ACCEPTED BY THE AO. ACCORDINGLY, THE LD CIT(A) HELD THAT THE PREMIUM AMOUNT SHOULD BE TAKEN AS RS.3.42 CRORES ON LY AND ACCORDINGLY DELETED THE ADDITION OF RS.53.00 LAKHS MADE ON THIS ACCOUNT. 51. BEFORE US, THE LD D.R CONTENDED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN NOT CONSIDERING THE ENHANCEMENT PROPOSAL GIVEN BY THE A O DURING REMAND PROCEEDINGS. AS STATED EARLIER, WE ARE OF THE VIEW THAT THE TRIBUNA L IS NOT EMPOWERED TO GIVE ANY DIRECTION TO THE LD CIT(A) IN THIS REGARD. HOWEVER , IN OUR VIEW, THE ENHANCEMENT PROPOSAL GIVEN BY THE AO IN RESPECT OF PREMIUM INCO ME IS DEVOID OF MERITS, WHICH WE SHALL DISCUSS HERE UNDER:- (A) THE ASSESSEE HAS ALREADY DECLARED THE PREMIUM RECEIPT AS RS.3.42 CRORES, WHICH CONSISTS OF RS.3.02 CRORES RECEIVED BY WAY OF CHEQUES AND RS.40.00 RECEIVED BY WAY OF CASH. ACCORDING TO AO, SINCE THE RECEIPT OF RS.40.00 LAKHS WAS NOT CONFIRMED, IT SHOULD BE TAKEN AS INCOME OF THE ASSESSEE U/S 68 OF THE ACT. HOWEVER, THE FACT REMAINS THAT THE AMOUNT OF RS.40.00 LAKHS IS PART O F RS.3.42 CRORES ALREADY DECLARED BY THE ASSESSEE AND HENCE THE QUESTION OF ASSESSING TH E SAME AGAIN U/S 68 DOES NOT ARISE AT ALL. HENCE, THE AOS PROPOSAL WITH REGARD TO TH IS AMOUNT IS DEVOID OF ANY MERIT. (B) FROM THE COPY OF THE COMPUTATION STATEMENT, WE NOTICE THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.70.50 LAKHS GIVEN AS PU RCHASE ADVANCE AND A SUM OF RS.1.55 CRORES REFUNDED TO THE PROSPECTIVE PURCHASE RS AGAINST THE PREMIUM AMOUNT OF RS.3.42 CRORES. ACCORDINGLY, THE ASSESSEE HAS DECL ARED A SUM OF RS.1.16 CRORES AS NET RECEIPT FROM WHICH HE HAS CLAIMED OTHER EXPENSES. BOTH THESE PAYMENTS HAVE BEEN CONFIRMED BY THE PROSPECTIVE BUYERS IN THE REVOCATI ON AGREEMENT. HOWEVER, THE AO TAKES THE VIEW THAT THE PROSPECTIVE BUYERS HAVE CON FIRMED RECEIPT OF RS.1.02 CRORES ONLY, WHERE AS IN THE REVOCATION AGREEMENT, THEY HA VE CONFIRMED THE RECEIPT OF RS.1.55 CRORES. HENCE, THE INFERENCE DRAWN BY THE AO IS AG AINST THE FACTS AVAILABLE ON RECORD. SINCE THE AO HAS TAKEN THE FIGURE OF RS.1.02 CRORES , HE IS ARRIVING AT THE INCOME FIGURE OF RS.1.30 CRORES. IF THE REPAYMENT IS TAKEN AT RS .1.55 CRORES AND THE GROSS PREMIUM AMOUNT IS TAKEN AS RS.3.42 CRORES, IT WOULD RESULT IN A FIGURE OF RS. 1.16 CRORES, WHICH IS I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 57 THE AMOUNT DECLARED BY THE ASSESSEE IN HIS RETURN O F INCOME. HENCE THE PROPOSAL OF THE AO ON THIS POINT IS ALSO DEVOID OF ANY MERIT. (C) THE AO HAS SUGGESTED THE ADDITION OF RS.21.00 LAKHS AS INCOME OF THE ASSESSEE, SINCE THE ORIGINAL OWNER OF THE STATE HAS STATED THAT THIS AMOUNT WAS PAID TO THE ASSESSEE TOWARDS SETTLEMENT OF LABOUR. ACCORDI NG TO THE ASSESSEE, THE AO HAS NOT PUT THIS STATEMENT TO THE ASSESSEE AND HE DID NOT H AVE A CHANCE TO OFFER HIS EXPLANATION. HOWEVER, IT IS SEEN THAT THIS AMOUNT WAS GIVEN FOR A SPECIFIC PURPOSE, I.E., FOR SETTLEMENT OF LABOUR AND THE AO HAS NOT B ROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ABOVE SAID AMOUNT CONSTITUTES INCOME IN THE HANDS OF THE ASSESSEE. HENCE, THE PROPOSAL OF THE AO ON THIS POINT IS ALSO DEVOID OF ANY MERIT. 52 WITH REGARD TO THE ADDITION OF RS.53.00 LAKH S, THE AO HAS PLACED RELIANCE ON THE RECEIPT DATED 22.11.06, A COPY OF WHICH IS PLACED A T PAGE 7 OF THE PAPER BOOK FILED BY THE ASSESSEE. WE NOTICE THAT THE SAID RECEIPT IS SIGNED BY SHRI JOH MATHAI, SHRI THOMAS MATHEW MATHAI AND THE ASSESSEE. THE SAME PAP ER BOOK, AT PAGES 1 TO 4, CONTAINS A COPY OF REVOCATION AGREEMENT DATED 29.1. 2007, WHICH IS ALSO SIGNED BY THE VERY SAME THREE PARTIES, STATED ABOVE. THE REVOCAT ION AGREEMENT, BEING A LATER DOCUMENT, IN OUR VIEW, IT WILL CARRY MORE WEIGHT. FURTHER THE RECEIPT MENTIONS ABOUT THE PAYMENT DUE AND NOT ACTUAL PAYMENT, WHERE AS THE REVOCATION AGREEMENT MENTIONS ABOUT THE ACTUAL PAYMENT MADE. HENCE, IN OUR VIEW, THE REVOCATION AGREEMENT SHALL PREVAIL OVER THE RECEIPT. THE DE PARTMENT HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT THE REVOCATION AGREEMENT IS N OT RELIABLE. UNDER THESE CIRCUMSTANCES, IN OUR VIEW ALSO, THERE IS NO REASON TO SUSPECT THE VERACITY OF THE REVOCATION AGREEMENT. ACCORDINGLY, IN OUR VIEW ALS O, THE PREMIUM AMOUNT HAS TO BE TAKEN AS RS.3.42 CRORES ONLY, AS MENTIONED IN THE R EVOCATION AGREEMENT. ACCORDINGLY, WE CONFIRM THE VIEW TAKEN BY LD CIT(A) ON THIS ISSU E. 53. THE NEXT ISSUE RELATES TO THE ADDITION OF RS .40.00 LAKHS AS UNEXPLAINED INVESTMENT. IT WAS NOTICED BY THE AO THAT THE ASSE SSEE HAS MADE FOLLOWING INVESTMENTS DURING THE YEAR:- I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 58 (A) PAID TO SHRI THOMAS MATHEW, MD, CITY HOSPITAL - 25.00 LAKHS (B) PAID TO SHRI GOPALAKRISHNAN, SHAREHOLDER - 1 0.00 LAKHS (C) PAID TO HOTEL MARIA PARK - 5.00 LAKHS -------- 40.00 LAKHS ==== SINCE THE ASSESSEE DID NOT OFFER ANY EXPLANATION AB OUT THE SOURCES FOR MAKING ABOVE SAID PAYMENTS, THE AO TREATED THE ABOVE SAID AMOUNT OF RS.40.00 LAKHS AS UNEXPLAINED INCOME OF THE ASSESSEE. 53.1 BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT THE PAYMENT OF RS.25.00 LAKHS AND RS.10.00 LAKHS WERE MADE IN ORDER TO PURCHASE THE C ITY HOSPITAL. HOWEVER, THE DEAL DID NOT MATERIALIZE AND HENCE HE RECEIVED BACK THE ABOV E SAID AMOUNTS. WITH REGARD TO THE AMOUNT OF RS.5.00 LAKHS, HE SUBMITTED THAT THE SAME WAS PAID AS ADVANCE FOR PURCHASE OF HOTEL MARIA PARK. HE FURTHER SUBMITTED THAT THE PREMIUM INCOME DECLARED BY HIM AS WELL AS THE LOAN OF RS.80.00 LAKHS OBTAIN ED FROM SHRI ISACC GEORGE DURING THE YEAR SUFFICIENTLY EXPLAINS THE SOURCES FOR THE ABOV E SAID PAYMENTS. 53.2 IN THE REMAND REPORT, THE AO ACCEPTED ABOUT THE AVAILABILITY OF FUNDS THROUGH THE COMMISSION INCOME OF RS.6.00 LAKHS AND ALSO THE LOAN OF RS.80.00 LAKHS TAKEN FROM SHRI ISACC GEORGE. HOWEVER, THE AO EXPRESSED THE V IEW THAT IT IS DIFFICULT TO ACCEPT THESE EXPLANATIONS IN THE ABSENCE OF A CASH FLOW ST ATEMENT. THE LD CIT(A) ACCEPTED THE FACT OF AVAILABILITY OF FUNDS THROUGH THE INCOM E DECLARED BY THE ASSESSEE AS WELL AS THE LOAN AVAILED BY HIM. ACCORDINGLY, THE LD CIT(A ) DELETED THIS ADDITION. 53.3 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. IN THE REMAND REPORT, THE AO HAS ACCEPTED THE FACT THAT THE ASSESSEE HAS AVAILED A LOAN OF RS.80.00 LAKHS FROM SHRI ISACC GEORGE. BESIDES THE ABOVE, THE ASSESSEE HAS ALSO DECLARED COMMISSION INCOME OF RS.6.00 LAKHS DURING THIS YEAR. HENCE, EVEN IF THE AO DO NOT ACCEPT THE EXPLANATION OF THE ASSESSEE THAT HE HAS RECEIVED BACK THE AMOUNT O F RS.35.00 LAKHS GIVEN FOR PURCHASE OF CITY HOSPITAL, YET THE SOURCES STATED A BOVE ARE SUFFICIENT ENOUGH TO EXPLAIN THE IMPUGNED PAYMENT OF RS.40.00 LAKHS. ACCORDINGL Y, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) ON THIS ISSUE. I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 59 54. THE NEXT ISSUE RELATES TO THE ADDITION OF PE AK CREDIT BALANCE IN THE BANK ACCOUNTS OF THE ASSESSEE. THE LD CIT(A) HAS DELETED THE SAM E BY HOLDING THAT THERE IS NO REASON TO MAKE THIS ADDITION, WHEN THE ASSESSEE HAS TRANSACTED HIS REAL ESTATE DEALS THROUGH HIS BANK ACCOUNTS. THE REVENUE IS AGGRIEVE D BY THE SAID DECISION OF LD CIT(A). 54.1 AN IDENTICAL ADDITION OF PEAK CREDIT BALANCE WAS MADE IN THE ASSESSMENT YEAR 2004-05 ALSO. WE HAVE DEALT WITH THE SAME IN DETAI L WHILE CONSIDERING THE APPEAL OF THAT YEAR. ALL THE OBSERVATIONS MADE THEREIN SHALL ALSO APPLY FOR THE YEAR UNDER CONSIDERATION. CONSISTENT WITH THE VIEW TAKEN IN A SSESSMENT YEAR 2004-05, IN THIS YEAR ALSO, WE HOLD THAT THERE IS FORCE IN THE SUBMISSION OF THE ASSESSEE THAT HE HAS ROUTED THROUGH MAJOR PORTION OF SALE PROCEEDS OF REAL ESTA TE BUSINESS AND VEHICLE BUSINESS THROUGH HIS BANK ACCOUNTS. 55. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE FOR ASSESSMENT YEARS 2003-04 IS DISMISSED. ALL OTHER APPEALS FILED BY THE ASSESSEE ARE ALLOWED. THE APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2006-07 IS PARTLY ALLOW ED. ALL OTHER APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 13 -11-2013 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 13TH NOVEMBER, 2013 GJ I.T.A. NOS.726-730/COCH/2010 & 46-49 & 359&360/COCH/2011 60 COPY TO: 1. M.M. SULAIMAN, SAFIA ESTATE, PUTHUSSERY, NILAMEL , KOLLAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE-1,TRIVANDRUM. 3. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE-1, TRIVANDRUM. 4. THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, KO CHI. 5. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 6. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 7. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN