ACIT Vs Laxmi Ram Khandelwal (ITAT Jaipur)
ITAT Jaipur set aside the CIT(A) order as the same being non-speaking and cryptic order which is passed against the principles of natural justice as opportunity to the AO to ascertain the correct fact was not granted.
Facts- A survey u/s. 133A of the Act was conducted at the business premises of M/s. Radha Govind Build Estate Private Limited on 18.11.2009, wherein the assessee is one of the directors. During the course of survey, one of the directors, Shri Ramesh Dangayach was examined and he admitted undisclosed income of Rs. 3,55,31,259/- in the hands of the company based on the papers impounded at the time of survey. The paper indicated undisclosed profit earned on real estate transactions of the assessee as on 26.05.2005. In the case of the company, addition was made in A. Y. 2009-10 based on admission of the director. However, before CIT(A) a claim was made by the company that date mentioned on the document was prior to its inception and thus CIT(A) directed to delete the addition in the hands of the assessee company in A. Y. 2009-10 and further directed to consider it in the respective years as reflected in the impounded document. The impounded document indicated name of the assessee as one of the four investors and recipient of the unaccounted profit earned on real estate transactions up to 26.05.2005, relevant to A. Y. 2006-07.
Thereafter, taking facts into consideration, the AO arrived at the conclusion that substantial income of the assessee has escaped assessment within the meaning of section 147 of the Act, accordingly notice u/s. 148 of the Act was issued after obtaining the necessary approval.
Based on the non-compliance of the assessee, AO after analyzing all the evidences on record and re-producing the same in the assessment order made an addition of Rs. 2,52,73,204/- being the amount not recorded as investment made in the real estate and Rs. 89,35,941/- being the profit earned and not disclosed from the real estate project. Aggrieved by the order of CIT(A), revenue has preferred the present appeal.
Conclusion- Held that CIT(A) order is not speaking and reasoned order but also cryptic against the fact already on record and the same is against the principles of the natural justice as he has given his finding without giving the opportunity to the AO to ascertain the correct fact and the same is not in accordance with the one view taken in the case of the company and therefore, we are of the considered view that the order of the CIT(A) in this case is not sustainable.
At the same time we are of the view that there require verification of the all the partners / director of the company in their individual books vis a vis the transactions recorded in the case of the company after incorporation is the same transactions or the other out of the books transactions all these require in depth verification in this case and since the same is not done by the ld. CIT(A) in this case the matter is restored back in the interest of justice to the file of the ld. CIT(A) to pass a reasoned order after giving sufficient opportunity to the parties in accordance with the law.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
These three appeals filed by the revenue aggrieved from the order of the Commissioner of Income Tax (Appeal)- 4 & 1, Jaipur [ Here in after referred as ld. CIT(A) ] for the assessment year 200607 dated 08.05.2017 & 09.08.2019. which in turn arises from the order passed u/s. 144 r.w.s. 147 dated 03.03.2014 by the DCIT, Central Circle-01 Jaipur in the case of Shri Ramesh Dangayach & Shri Laxmi Ram Khandelwal and ITO, Ward-2(3), Jaipur passed under Section 143(3) r.w.s. 147 of the Income tax Act, 1961 (in short ‘the Act’) dated 13.04.2014 in the case of Shri Griraj Agarwal.
2. Since the issues involved in all these three-appeal filed by the revenue’s is related to assessment year 2006-07, facts of these cases almost identical and the issues are almost common, except the difference in figure of additions disputed, therefore, all these appeals were heard together with the agreement of both the parties and are being disposed off by this consolidated order.
3. At the outset, it was agreed that the matter pertaining to Shri Laxmi Ram Khandelwal in ITA no. 646/JPR/2017 may be taken as a lead case for discussions as the issues involved in the lead case are common and inextricably interlinked or in fact interwoven and the facts and circumstances of other cases are exactly identical except the difference in the amount in other two cases. The ld. AR did not raise any specific objection against taking that case as a lead case. Therefore, for the purpose of the present discussions, the case of ITA No. 646/JPR/2017 is taken as a lead case of each party. Based on the above arguments we have also seen that for all these appeals are similar, facts are similar and arguments were similar and therefore, were heard together and are disposed by taking lead case facts, grounds and arguments from the folder in ITA No. 646/JPR/2017.
4. Before moving towards the facts of the case we would like to mention that the revenue has assailed the appeal in ITA No. 646/JPR/2017 on the following grounds;
“(1) Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the addition of Rs. 2,53,73,024/- on account investment in real estate.
(2) Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the addition of Rs. 89,35,941/- on account of profit on real estate.”
“The Appellant crave, leave or reserve the right to amend modify, alter add or forego any grounds(s) of appeal at any time before or during the hearing of this appeal.”
5. Original return of income for the year under consideration was filed by the assessee on 10.01.2007 with ITO, ward 2 (1), Jaipur declaring total income of Rs. 2,15,804. This return was processed u/s. 143(1) of the Act on 21.02.2007 at the declared income.
5.1 The brief facts of this case is that a survey u/s. 133A of the Act was conducted at the business premises of M/s. Radha Govind Build Estate Private Limited on 18.11.2009, wherein the assessee is one of the directors. During the course of survey, one of the directors, Shri Ramesh Dangayach was examined and he admitted undisclosed income of Rs. 3,55,31,259/- in the hands of the company, in A. Y. 2009-10 based on the papers impounded at the time of survey ( page no. 4 of Annexure A). The paper indicated undisclosed profit earned on real estate transactions of the assessee as on 26.05.2005. In the case of the company, addition was made in A. Y. 2009-10 based on admission of the director. However, before the ld. CIT(A) a claim was made by the company that date mentioned on the document was prior to its inception (06.06.2005) and thus the ld. CIT(A) vide order dated 19.10.2012 directed to delete the addition in the hands of the assessee company in A. Y. 2009-10 and further directed to consider it in the respective years as reflected in the impounded document. The impounded document indicated name of the assessee as one of the four investors and recipient of the unaccounted profit earned on real estate transactions up to 26.05.2005, relevant to A. Y. 200607.
5.2 In the meanwhile, a search action u/s. 132 of the Act was also conducted at the premises of the assessee on 25.04.2012 along with other cases of Hari Mohan Dangayach Group. Consequent to search action, the case of the assessee was centralized. The AO, ITO, ward 3 (1), Jaipur having jurisdiction over the case of the Company M/s. Radha Govind Build Estate Private Limited vide his letter dated 07.03.2013 communicated the findings of the ld. CIT(A)-1, Jaipur order dated 19.10.2012 that unaccounted profit shown in impounded document is to be treated in respective years as mentioned in the impounded papers.
5.3 In the light of the findings of the ld. CIT(A)-1, Jaipur the case records of the assessee were again examined and it was noticed by the ld. AO that the assessee is one of the found beneficiaries of profit of Rs. 2,55,31,259/-. In this profit the share of the assessee was at Rs. 89,35,941/-. In his regular return filed no such profit was disclosed. The ld. AO also observed from perusal of the impounded documents that the assessee along with other three partners had also made substantial investment / expenditure in purchase of land and other expenses amounting to Rs. 7,22,08,641/- prior to 26.05.2005. This investment / expenditure was also not reflected in his regular return for A. Y. 2006-07. Taking these facts into consideration, the AO arrived at the conclusion that substantial income of the assessee has escaped assessment within the meaning of section 147 of the Act, accordingly notice u/s. 148 of the Act was issued after obtaining the necessary approval.
5.4 In compliance to notice u/s. 148 of the Act, the assessee filed his return of income on 05.07.2013 declaring same income as was declared in the return originally filed. He did not declare any undisclosed investment as well as undisclosed profit as founded noted on the impounded document. Notices were issued from time to time in the reassessment proceeding and were served to the assessee. After taking various adjournment the ld. AR of the assessee sought copy of reasons recorded before initiation of proceedings. The same was provided to the ld. AR of the assessee and the assessee has filed the objections on re-opening of assessment and desired that before proceeding in the matter his objection be first be disposed off.
5.5 The ld. AO disposed objection raised by the assessee vide letter dated 13.12.2013 and the same were rejected after detailed reasoning given by the AO and the same was also made part of the assessment order in dispute.
5.6 Thereafter, the ld. AO noted that on 06.01.2014 and 04.02.2014 being the date of hearing of this case none attended the proceeding nor any adjournment application was moved. Based on the non compliance on the part of the assessee and the assessment being time barring the ld. AO completed the same as per provision of section 144 of the Act and was issued the show cause notice on 04.02.2014 asking the assessee to file reply and furnish details as requested vide notice issued u/s. 142(1) and case was posted for hearing on 14.02.2014. On the same date also neither the reply of the show cause notice filed nor any details were filed by the assessee.
5.7 Based on the non-compliance of the assessee ld. AO after analyzing all the evidences on record and re-producing the same in the assessment order made an addition of Rs. 2,52,73,204/- being the amount not recorded as investment made in the real estate and Rs. 89,35,941/- being the profit earned and not disclosed from the real estate project.
6. Being aggrieved from the said order of the ld. AO the assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) has recorded his finding in para 3.3.2 to 4 of his order and the same is extracted here in below for the sake of brevity:
“3.3.2 I have duly considered assessee’s submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon. I have carefully gone through the case records also.
In this regard, it is submitted that verifiable facts of case are that all the purchases of land and sales of plots transactions are recorded in the books of account of Radha Govind Build Estates P. Ltd. and Ld. A.O. had made no efforts to look into the real transactions recorded in books of accounts. It is also evident, the stated land purchased was agricultural land whereas the alleged sale is of residential plots, which can only be done after getting the conversion of land use involving approval of competent authorities and no such record/ evidence/ documents were referred to by the Ld. A.O. before arriving at the conclusion that the assessee has made undisclosed investment in acquisition of land and having income from unrecorded sale of such land., Further no effort has been made to verify the fact of ownership from the land revenue authorities as the sole allegation depends upon the ownership of land under reference alleged as purchased and sold by assessee company. Further, the amounts reflecting as profit in the impounded paper No.4 was merely an amount which was projected as profit on a future sale but that could be possible only if the land was purchased and subsequently sold. The verifiable facts are that all the purchases of land and sales of plots transactions are recorded in the books of account of M/s Radha Govind Build Estates P. Ltd. but no efforts was made during the assessment proceedings to look into the real transactions recorded in books of accounts. The real sale transaction will always be with reference to identifiable plots. Further, the impounded papers found during the course of survey operation relates projections and estimates made prior to incorporation of company or at times in course of business or relates to transaction recorded in regular books of accounts of company duly audited and audited accounts were filed along with year wise return(s) of income by assessee company.
Further, I have also taken a note of appellate order passed by Ld. CIT(A)-1 Jaipur, wherein on the basis of same set of impugned impounded documents, appeals in case of M/s Radha Govind Build Estate Pvt Ltd for AY 2007-08, 2008-09 & 2010-11, have been partly allowed, wherein it has been held that additions will have to be made, sustained/ enhanced in the hands of assessee company M/s Radha Govind Build Estate Pvt Ltd only, accordingly, no addition is required to be made in the hands of directors namely Sh Laxmi Ram Khandelwal or in the hands of Sh Ramesh Chand Dangayach.
In view of facts and circumstances mentioned above and respectfully following the decision of Ld CIT(A)-1 Jaipur in case of M/s Radha Govind Build Estate Pvt Ltd (duly considering impugned Impounded documents), no additions on ac/ of investment in land and profit arising out of it, can be made in the hands of assessee Sh Laxmi Tam Khandelwal when the same has already been considered in the hands of assessee company M/s Radha Govind Build Estate Pvt Ltd. Accordingly additions made of Rs. 89,35,941/- on a/c of share in profit from land transactions and Rs. 2,52,73,024/= on a/c of share in real estate projects. Assessee’s appeal in Gr No 3(a) & 3(b) stands allowed.
Therefore, in view of relief given in Gr No 3, proceeding initiated u/s 147 of the Act becomes academic in nature, hence not adjudicated.
3.4 Ground No. 4: “That without prejudice to the ground no. (3) above the AO is wrong and has erred in law in not allowing benefit of telescoping of investment of alleged undisclosed profit in alleged undisclosed investment/expenses.”
3.4.1 Assessee has submitted inter alia as under:
“….That without prejudice to the ground No. (3) above the assessing officer is wrong and has erred in law in not allowing benefit of telescoping of investment of alleged undisclosed profit in alleged undisclosed investment/expenses.
This ground of appeal is without prejudice to the relating grounds in ground No. 3 of the appellant and the appeal may kindly be decided accordingly….. “
3.4.2 I have duly considered assessee’s submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon. The entire addition made by the AO on the basis of impugned impounded documents have been considered in the hands of assessee company M/s Radha Govind Build Estate Pvt Ltd, accordingly, no addition is required to be made in assessee’s hands. In view of these facts, the alternative ground has become academic in nature. Therefore, there is no need for adjudication for this ground of appeal.
3.5 Ground No. 5: “That the levy of interest u/s 234A(3) & 234B(3) on the appellant is wrong and bad in law and in also not correctly calculated.”
3.5.1 As the charging of interest u/s 234A(3) & 234B (3) of the Act is automatic, however in view of relief given in above para, AO is directed to re-compute the interest chargeable u/s 234A(3) & 2348(3) while giving effect to this appellate order.
In the result, the appeal is allowed to the extent indicated above.”
7. Aggrieved from the finding of the ld. CIT(A) the revenue has preferred this appeal on the grounds as reproduced here in above. The main grievance of the revenue is that ld. CIT(A) vide order dated 19.10.2012 while dealing with the case of M/s. Radha Govind Buildstate Private Limited held that the paper seized / impounded pertain to prior to the incorporation of company and directed to make addition in the hands of the related person and after that finding the case was re-opened in the case of the assessee. Whereas, ld. CIT(A) in this case vide order dated 08.05.2017 held that the papers in questions and transactions is part of company and this finding has been given by the ld. CIT(A) without taking into consideration the findings of the ld. CIT(A) in the case of the company and based on that finding proceeding was initiated in the case of the assessee. The ld. DR further objected the findings that given by the ld. CIT(A) is without asking reason and basis of re-opening vis a vis material on record. The ld. CIT(A) did not find it proper to call for any remand report on the factual aspects of the case. Thus, the ld. CIT(A) has not only violated the judicial consistency rule but has also violated the principles of natural justice, as the additions were not only made based on the statement of Shri Ramesh Dangayach, but based on the evidences find during the proceedings and is duly supported by the corroborative evidence where in the exact figure of the expenditure incurred in the purchase and sale of out of books transactions reflected and it cannot be considered that these are estimate of the project when the same is found correctly recorded and is supported by the statement recorded based on these evidence. Based on the evidence it was duly confirmed that the sale of plots and profit there upon were out of books. Based on this arguments he had summarily submitted that the matter be remanded back to examine the real facts of the case and if this is not done then the stake of the revenue, being higher will be much affected and in the interest of justice real fact finding on the various legal as well as factual aspect is required to be examined. Therefore, ld. DR vehemently argued for allowing one chance to safe guard the revenue be given.
8. Per contra, the ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below;
“The above appeal has been filed by department against the appeal order dated 08-05-2017 passed by CIT (A) – IV, Jaipur in Appeal No. 766/2013-14. The department has raised following grounds of appeal.
“1. Whether on the facts and in the circumstances of the case the Ld. CIT (A) – 4, Jaipur was right in deleting the addition of Rs2,53,73,027/- on account of investment in real estate.
2. Whether on the facts and in the circumstances of the case the Ld. CIT (A) was right in deleting the addition of Rs.89,35,941/- on account of profit on real estate.
The appellant crave, leave or reserve the right to amend modify, alter add or forgo any ground(s) of appeal at any time before or during the hearing of this appeal.
Facts of the case
(a) The appellant assessee is one of the director of a private company M/s. Radha Govind Buildestate Pvt. Ltd., Jaipur. The other two directors are Shri Giriraj Agarwal and Shri Ramesh Dangayach. The said company was incorporated on 06.06.2005 having main object(s) of carrying on the real estate business. Before incorporation/formation of the company the directors planned to acquire agricultural lands about 76.18 bigha to develop a residential colony/scheme. The modus operandi of this line of business is that generally every developer/person before starting the actual business and plotting at site, a paper plan of the proposed scheme/colony is prepared under an understanding with the respective land owners to purchase the land later on . Further on the basis of the said paper plan the developer(s) also starts booking of the land spaces/plots. Exactly similar modus operandi was also adopted by promoters of the said company and made out a paper plan to develop a residential colony on agriculture land of about 76.18 bigha owned by the following persons.
