Om Builders Vs ACIT (ITAT Indore)
Held that addition made merely on the basis of statement by one of the partners and without finding any incriminating material is untenable in law.
Facts-
AO made addition on the basis of a statement and by stating that several incriminating documents were confronted for which the assessee was unable to explain. AO, however, did not point out any incriminating loose paper.
CIT(A) deleted maximum additions. Being aggrieved, the revenue and the respective assessee are in appeals.
Conclusion-
Held that AO failed to bring on record any specific instance of the assessee having earned any undisclosed income or having made any unexplained investment which could justify the addition under reference. The sole basis for making the addition is the statement made by one of the partners. The Ld. A.O. did not make any addition for the documents found.
Held that we are of the view that no addition can be made without finding any incriminating material merely on the basis of the declaration u/s 132(4).
FULL TEXT OF THE ORDER OF ITAT INDORE
The above captioned appeal filed at the instance of the respective assessee and the appeals filed at the instance of the Revenue are directed against the orders of Ld. Commissioner of Income Tax(Appeals)-3, Bhopal [in short Ld. CIT(A)] dated 01.1.2020, 02.1.2020 & 20.3.2020, respectively, which are arising out of the assessment orders dated 22.3.2016, 22.3.2016 & 18.3.2016, respectively, framed by ACIT, Central-II, Bhopal. Both the parties submitted that as the instant appeals relate to the assessee(s) from same Signature Group wherein search was conducted u/s 132(4) of the Act on 29.01.2014 and the issues raised in various grounds and facts involved are mostly common, all these appeals may be disposed of by a common order for the sake of convenience and brevity.
Om Builders, Bhopal
In IT(SS)A No.18/Ind/2020 for the assessment year 2012-13, the assessee has raised the following grounds of appeal:
“1. On the facts and in circumstances of the case, ld. CIT(A) has erred in confirming the additions in the years when no proceedings were pending for assessment as on the date of search.
2. On the facts and in circumstances of the case, ld. CIT(A) has erred in confirming the addition of Rs.3,50,000/- on account of unexplained unsecured loan.”
In IT(SS)A No.62/Ind/2020 for the assessment year 2013-14, the Revenue has raised the following grounds of appeal:
“1. On the facts and in circumstances of the case, ld. CIT(A) has erred in deleting the addition of Rs.2,85,50,000/-made by the Assessing Officer on account of unexplained unsecured loan.”
In IT(SS)A No.63/Ind/2020 for the assessment year 2014-15, the Revenue has raised the following grounds of appeal:
“1. On the facts and in circumstances of the case, ld. CIT(A) has erred in deleting the addition of Rs.2,75,00,000/-made by the Assessing Officer on account of additional income surrendered by the assessee u/s 132(4) of the I.T. Act.
2. On the facts and in circumstances of the case, ld. CIT(A) has erred in deleting the addition of Rs.55,00,000/- made by the Assessing Officer on account of unexplained unsecured loan.”
2. Facts as culled out from the orders of the Revenue Authorities are that the assessee is a partnership firm and filing the returns regularly. A search was conducted on the Signature Group on 29.1.2014 and search action was also taken against the assessee which commenced on 29.1.2014 and concluded on 31.1.2014. Statement u/s 132(4) of Ms. Rekhi Dwivedi, the In-charge of the accounts department was recorded on 30.1.2014 and 31.1.2014. Statements were also recorded of Mr. Deepak Hariramani (looking after Marketing) and Mr. Prabodh Mathur (the Architect of the project) on 30.1.2014. In the statements, questions were raised regarding various loose papers found and the books of account maintained by the assessee. The final panchnama was drawn on 31.1.2014 in the case of the assessee, thus, the search in the case of the assessee was completed at 11:30 pm on 31.1.2014. During the course of the statement recorded u/s 132(4) the assessee declared an additional income of Rs. 2,75,00,000/- for the A.Y. 2014-15. In the statement, Q.27 was asked as under:
“During the course of search at Bhopal and Raipur many loose papers have been found for which no satisfactory answer and explanations have been given. In relation to these papers, an opportunity is given for explanation after consulting the other partners/ directors.”
The assessee gave a reply as under:
“I have seen the loose papers of Raipur situated projects which are run by Sainath Infrastructure Pvt. Ltd., Om Construction and Om Builders and seen the loose papers and statements. I have consulted the partners/ directors. For these loose papers and for receipt of unaccounted money for sale of some units I offer a sum of Rs.11 crores in the three concerns as undisclosed income for F.Y.2013-14. Besides this I surrender the undisclosed income of Rs. 11 crores in the following concerns:
a. Signature Developers
b. Signature Infrastructure
c. Signature Builders
d. Signature Builders and Colonisers.”
In the statement, the Q.9 was asked as under:
“Do you take any payment from customers in cash other than the sale price mentioned in the registry and additional charges recovered?”
The assessee gave a reply as under:
“No. No additional payment is taken in cash in addition to above.”
Subsequently statement of Mr. Rajkumar Khilwani, one of the partners, was recorded on 02.02.2014 in which he surrendered the income of Rs. 1100 Lakh on account of cash receipt outside the books of account jointly in the case of the assessee and in case of the firms M/s. Om Construction & M/s. Sainath Infrastructure P. Ltd. However, the same was not offered as income in the return filed. Thus, the statement of Shri Rajkumar Khilwani was recorded after the completion of the search and seizure at the premises of the assessee. However, while filing the returns, the assessee retracted from the said surrender and filed the returns on the basis of the accounts which are duly audited. In the course of the assessment proceedings, all the information as required by the AO from time to time was furnished. The assessee is in the business of real estate, builders and developers. The assessee during the relevant period was developing a residential complex in the name of Sapphire Green, Raipur. The expense incurred on the purchase of land and construction expenses on the project were the business expenses of the assessee. The assessee had maintained regular books of account in which all the expenses including the cost of construction were duly recorded. These books were presented before the AO during the course of assessment proceedings and were duly checked by him and no deficiency was found in the books of account or the records maintained. It was submitted before the ld. A.O. that in absence of any incriminating paper, no addition can be made. However, the ld. A.O. made the addition on the basis of the statement recorded during the course of the search. The ld. A.O. narrated number of documents found during the course of the search at Pg. 22-23 of the order. At pg. 28 in para 10.1, the ld. A.O. relied on the statement recorded u/s 132(4). On pg. 21, he stated that several incriminating documents were confronted for which the assessee was unable to explain. He, however, did not point out any incriminating loose paper, thus, on the sole ground of the declaration in the statement, the additions in question were made.
3. Being aggrieved, the assessee approached the ld. CIT(A) and the ld. CIT(A), except the addition of Rs.3,50,000/- for the assessment year 2012-13 in which the assessee is in appeal, deleted these additions relying on the decision of the various High Courts and the decision of this Bench in the case of Ultimate Builders in ITA 134/IND/2019. The Ld. CIT(A) observed that the additions have been made merely on the basis of the statement recorded without specific reference to any incriminating material found during the course of the search suggesting any earning of unaccounted income.
4. Being aggrieved, the Revenue and the respective assessee are in appeals. Ld. CIT-DR relied upon the orders of the Assessing Officer whereas learned Counsel for the assessees submitted that no incriminating evidence was found during the course of search or afterwards during post search enquiry or pre assessment enquiries to suggest that the assessee has incurred any unrecorded expense. Therefore, the assessee was justified in retracting from the declaration made for additional income u/s 132(4). Further, in respect of unsecured loans, the learned Counsel for the assessee submitted that the necessary papers to establish genuineness of the transaction were filed. The assessee has proved beyond doubt the identity of the lender, credit worthiness and the genuineness. The ld. CIT(A) relied on various case laws and after considering the submissions of the assessee deleted the additions. In the remand report, the ld. A.O. has accepted the factual position and only in 2 cases has raised doubts about the genuineness of the transaction because of non-repayment. Thus, learned Counsel for the assessee submitted that since the assessees have established the genuineness of the transactions from all the sides, the ld. CIT(A) was right in deleting the additions.
5. We have considered the rival submissions of both the parties and gone through the material available on the file. We find that in the course of the assessment proceedings all the information as required by the AO from time to time was furnished. The assessee is in the business of real estate, builders and developers. The assessee during the relevant period was developing a residential complex in the name of Sapphire Green, Raipur. The expense incurred on the purchase of land and construction expenses on the project were the business expenses of the assessee. The assessee had maintained regular books of account in which all the expenses including the cost of construction were duly recorded. These books were presented before the AO during the course of assessment proceedings and were duly checked by him and no deficiency was found in the books of account or the records maintained and no incriminating evidence was found during the course of search or afterwards during post search enquiry or pre assessment enquiries to suggest that the assessee has incurred any unrecorded expense. Therefore, while filing the returns, the assessee retracted from the said surrender/the declaration made for additional income u/s 132(4) and filed the returns on the basis of the accounts which are duly audited. We find that entire records found were seized and a panchnama was prepared on 31.01.2014 which was the last panchnama drawn in the case of the assessee and no further panchnama was drawn. Subsequently statement of Mr. Rajkumar Khilwani, one of the partners was recorded on 02.02.2014 in which he surrendered the income of Rs. 1100 Lakh in the case of the assessee and in the case of other concerns. The same was not also offered as income in the return filed. Thus, the statement of Shri Rajkumar Khilwani was recorded after the completion of the search and seizure at the premises of the assessee. The said statement was recorded on 02.02.2014 during search and seizure operation at 18-19 Kolar Castle, Chuna Bhatti Square, Kolar Road, Bhopal in the case of Signature group, as such it can be concluded that the said statement was not in connection with the search operation carried on in the case of the assessee at Raipur. Thus the statement under consideration cannot be said to have been recorded during the course of search in the case of the assessee. We find that it was also submitted before the ld. A.O. that in absence of any incriminating paper, no addition can be made. However, the ld. A.O. made the additions simply on the basis of the statement recorded during the course of the search. The ld. A.O. narrated number of documents found during the course of the search at Pg. 22-23 of the order. None of these documents pertain to the assessee. At pg. 28 in para 10.1, the ld. A.O. merely relied on the statement recorded u/s 132(4). On pg. 21, he merely stated that several incriminating documents were confronted for which the assessee was unable to explain. He however, did not point out any incriminating loose paper. On the sole ground of the declaration in the statement the additions were made. We further find that the ld. CIT(A) deleted these additions relying on the decision of the various High Courts and the decision of ITAT Indore Bench in the case of Ultimate Builders in ITA 134/IND/2019. The Ld. CIT(A) observed that the additions were made merely on the basis of the statement recorded without specific reference to any incriminating material found during the course of the search suggesting any earning of unaccounted income. Thus, we are of the view that no addition was warranted as the surrender was not made with reference to any loose paper seized during the course of search and was accordingly not in accordance with the provisions of section 132(4) as the Ld. AO failed to bring on record any specific instance of the assessee having earned any undisclosed income or having made any unexplained investment which could justify the addition under reference. The sole basis for making the addition is the statement made by one of the partners. The Ld. A.O. did not make any addition for the documents found. He simply made addition in various years in respect of unsecured loans u/s 68 which are already entered in the books. Further, we find that the question asked and the answer given in the statement recorded were both vague and general in nature and were not with reference to any specific document or asset found during the course of search which would indicate the acceptance of the assessee of earning of any unrecorded income. Rather the assessee has made a categorical unambiguous statement that the assessee has not earned any unrecorded income as is evident from the statement of Mr. Rajkumar Khilwani recorded as under:
Q-9: Do you take any payment from customers in cash other than the sale price mentioned in the registry and additional charges recovered.
A-9: No. No additional payment is taken in cash in addition to above
Thus, we are of the view that no addition can be made without finding any incriminating material merely on the basis of the declaration u/s 132(4). Our view is supported by the direct judgment of the this Indore Bench of Tribunal in the case of Shri Sudeep Maheshwari in ITA 524/IND/2013 pronounced on 13/02/2019 and in the case of M/s Ultimate Builders in ITA 134/2019 pronounced on 09/08/2019. The Tribunal further deleted similar additions in the case of Signature Builders in ITA 185&186/IND/2018 and in the case of Signature Infrastructure in ITA No (SS)187&188/IND/2018 vide order dated 08.1.2021. Copies of these decisions have been filed in the paper book. We find that the Tribunal has relied on the various judgments of the various High Courts specially the decision of the Hon. Jharkhand High Court in the case of Shri Ganesh Trading co. v/s. CIT (2013) 257 CTR 159 and the decision of Hon. Gujrat High Court in the case of Kailashben Mangarlal Choksi v/s. CIT (2008) 14 DTR 257 (Guj). The relevant portion of the order dated 8.1.2021 passed in the case of Signature Builders & in the case of Signature Infrastructure (supra) is reproduced hereunder:
“17. Now we take up Ground No.3 raised for Assessment Years 2013-14 and 2014-15 in the case of Signature Builders vide ITA No.185&186/Ind/2018 through which common issue has been raised by the assessee contending that 1d. CIT(A) was not justified in confirming the addition made by the 1d. A.O for the amount declared by the assessee as additional income of Rs.25,00,000/- and Rs.3,00,00,000/- for Assessment Year 2013-14 and 2014-15 respectively in the statement given during the course of search u/s 132(4) of the Act.
18. Brief facts relating to this common issue as culled out from the records and as narrated by the 1d. Counsel for the assessee are that a search was conducted at the premises of the Signature Group on 29.01.2014 and also at the premises of the assessee firm. In the case of the assessee the search commenced on 29.01.2014 at 08.45 A.M and was concluded at 08.00 AM on 02.02.2014. The proceedings continued for 4 days (96 hours) without any break. The statement of Mr. Raj Kumar Khilwani commenced on 01/02/2014 and was concluded on 02/02/2014. During the course of the statement, the assessee declared the additional income of Rs.25,00,000/- for the A.Y. 2013-14 and Rs. 3 crores for the A.Y. 2014-15 (Pg.222-240 of PB at page 239). In the statement Q.27 was asked as “during the course of search at Bhopal and Raipur many loose papers have been found for which no satisfactory answer and explanations have been given. In relation to these papers, an opportunity is given for explanation after consulting the other partners/ directors. The assessee gave a reply as I have seen the loose papers of Raipur office and consulted the partners/ directors. For these loose papers and for receipt of unaccounted money for sale of some units I offer a sum of Rs.11 crores as undisclosed income for F.Y.2013-14 in the following firms
a. Signature Developers
b. Signature Infrastructure
c. Signature Builders
d. Signature Builders and Colonisers
19. The additional income disclosed in various cases has been mentioned by the ld. A.O. at Pg.9 of the order which included the amount of Rs.3,25,00,000/- in the case of the assessee.
20. It was submitted before the ld. A.O. that in absence of any incriminating paper, no addition can be made. However, the ld. A.O. has made the addition simply on the basis of the statement recorded during the course of the search. The ld. A.O. has narrated number of documents found during the course of the search at Pg. 14 & 15 of the order. None of these documents pertains to the assessee. In para 9 the ld. A.O. has merely relied on the statement recorded u/s 132(4). On pg.24 he has merely stated that several incriminating documents were confronted for which the assessee was unable to explain. On the sole ground of the declaration in the statement the addition has been made. The ld. CIT(A) upheld these additions relying on the evidence and holding that the declaration made u/s 132(4) is binding on the assessee.
21. Now the assessee is in appeal before the Tribunal.
22. Ld. Counsel for the assessee submitted that no addition was warranted as the surrender has not been made with reference to any loose paper seized during the course of search and was accordingly not in accordance with the provisions of section 132(4) of the Act. The AO has failed to bring on record any specific instance of the assessee having earned any undisclosed income or having made any unexplained investment which could justify the addition under reference. The sole basis for making the addition is the statement made by one of the partners. The Ld. A.O. has made various additions for the documents found. Thus, all the loose papers and the investments have been considered by the A.O. and accordingly he has made the additions under various heads. After making the additions on the basis of various papers there remains no scope for making the addition on the basis of declaration made in the statement. It could be observed that the question asked and the answer given in the statement recorded were both vague and general in nature and were not with reference to any specific document or asset found during the course of search which would indicate the acceptance of the assessee of earning of any unrecorded income. Rather the assessee has made a categorical unambiguous statement that the assessee has not earned any unrecorded income. Reference in this regards may be made to the statement of Mr. Rajkumar Khilwani recorded on 01-02/02.2014
Q-9: Do you take any payment from customers in cash other than the sale price mentioned in the registree and additional charges recovered. A-9: No. No additional payment is taken in cash in addition to above
23. It is further submitted that no addition can be made without finding any incriminating material merely on the basis of the declaration. In this connection the attention is drawn to the direct judgment of the Hon’ble Indore Tribunal in the case of Shri Sudip Maheshwari in ITA 524/IND/2013 pronounced on 13/02/2019 and in the case of M/s Ultimate Builders in ITA 134/2019 pronounced on 09/08/2019. The Hon’ble Tribunal has relied on the various judgments of the various High Courts specially the decision of the Hon. Jharkhand High Court in the case of Shri Ganesh Trading co. v/s. CIT (2013), 257 CTR 0159 and the decision of Hon. Gujrat High Court in the case of Kailashben Mangarlal Choksi v/s. CIT (2008) 14 DTR 257. Under these circumstances the additions sustained by the ld. CIT(A) are bad in law. In view of this, it is humbly prayed that the addition sustained by the Ld. CIT(A) deserves to be deleted.
24. Per contra Ld. Departmental Representative vehemently argued supporting the order of lower authorities and submitted that the statement given by various persons on behalf of the assessee company was the statement on oath given u/s 132(4) of the Act and there was no coercion or undue influence and no pressure by the revenue authorities for making such surrender. Further there was no retraction within the reasonable time and the action of the assessee was an after thought. Ld. CIT(A) has rightly confirmed the addition and same needs to be upheld.
25. We have heard rival contentions and perused the records placed before us and carefully gone through the decisions relied by Ld. Counsel for the assessee. Through Ground No.3 raised for Assessment Years 2013-14 & 2014-15 assessee has challenged the finding of Ld. CIT(A) confirming the addition of Rs.25,00,000/- and Rs.3,00,00,000/- made by the Ld. AO for Assessment Years 2013-14 & 2014-15 respectively for the amount declared by the assessee u/s 132(4) of the Act contending that the same is without corroborating with any incriminating material found during the course of search.
26. We observe that the search was conducted on Signature Group including the assessee on 29.1.2014. Certain loose papers were seized. Additional income of Rs.3,25,00,000/- (Rs. 25,00,000/- + Rs.3,00,00,000/-) was offered for Assessment Years 2013-14 and 2014-15 respectively. However in the return of income filed post search u/s 153A of the Act such additional income of Rs.25,00,000/- and Rs.3,00,00,000/- was not offered in the return of income. During the assessment proceedings it was submitted that various loose papers and documents narrated by the Ld. A.O found during the course of search does not pertain to the assessee. Since there was no such incriminating material relating to the assessee found during the course of search relating to the addition in question the alleged addition was made purely on the basis of the statement given u/s 132(4) of the Act.
27. We also observe that in the assessment order as well as order of the first appellate authority there is no mention of any incriminating material having its nexus with the alleged income declared u/s 132(4) of the Act. The Ld. A.O has failed to prove on record any specific instance with support of incriminating material found during the course of search which could show that the assessee has earned the alleged undisclosed income. It is not in dispute that various other additions have been made by the Ld. A.O for the undisclosed investment u/s 69B, undisclosed investment in projects of land and unexplained unsecured loan as well as unexplained cash u/s 69A of the Act. However specifically with regard to the addition of Rs.25,00,000/- and Rs.3,00,00,000/- made for the Assessment Years 2013-14 and 2014-15 the same is purely based on the statement given on oath u/s 132(4) of the Act by the authorised representative on behalf of the assessee which was collectively surrendered as additional income on behalf of various group concerns. But without the support of any incriminating material on which the revenue authorities were able to lay their hands, this addition totalling to Rs.3.25 crores (Rs.25,00,000/- + Rs.3,00,00,000/-) is based only on the statement given u/s 132(4) of the Act.
28. Now the moot question remains that “whether the Ld. A.O was justified in making the addition purely on the basis of statement given u/s 132(4) of the Act without proving on record any corroborative evidence or incriminating material found during the course of search which could have direct nexus with the alleged addition of Rs.3.25 crores”.
29. We observe that similar issue came up before this Tribunal in another group concern M/s Ultimate Builders V/s ACIT ITA No.134/Ind/2019 order dated 09.08.2019. M/s Ultimate Builders was also subjected to search u/s 132 of the Act on 29.1.2014 being part of the same Signature group. From perusal of the impugned order of Ld. CIT(A) in the case of M/s Signature Builders observed at page 64 & 65, Ld. CIT(A) has given the brief details of the additional income admitted by the authorised person of M/s Signature group which is as follows;
