Absence of incriminating material during search- No Addition in Section 153A Assessment

DCIT Vs Shayona Land Corporation (ITAT Ahmedabad)

The assessee was engaged in the business of development and construction. There was a search action u/s. 132 of the Act carried out on 15^l October, 2013 in the case of the assessee. During the course of assessment, the assessing officer noticed that assessee has worked as developer for Shayona City and Shayona Estate. The assessing officer stated that in the group cases of other project pertaining to Aryamaan Scheme of Gajanand Corporation there was on money receipt which was voluntarily disclosed and additions were made for assessment year 2012-13 and 2013-14. In short there was a 60/40 ratio of actual sale receipt meaning that Rs. 60 out of 100 was booked in the books of account and offered for tax balance 40 was being taken either in cash or in any kind in the form of on money. On the basis of incriminating document seized in the case of the group cases the assessing officer was of the view that entire Shayona Group as well as connected group to the assessee firm was indulged in receipt of on money in 60/40. Therefore, the assessing officer has computed Rs. 3,18,79,334/- being on money received in cash and added to the total income of the assessee. The assessee challenged the impugned addition before the Id. CIT(A) that assessing officer has made said addition in the absence of incriminating document seized from the assessee. The Id. CIT(A) has categorically stated regarding diary seized from Sureshbhai R. Patel and the assessing officer has herself stated that recording in the diary was pertained to receipt from sale of flats pertaining to Aryamaan scheme of Gajanand Corporation. Obviously these documents did not belong to the assessee firm. The other document which was referred by the assessing officer was pertained to M/s. Narayan Developer not seized from the assessee. On the basis of other group cases, the assessing officer has stated that modus operand! of the assessee was also the same that the sale consideration was recorded at Rs. 60 as against the actual sale receipt of Rs. 100/-. In order to get clarification about incriminating document seized from the assessee the Id. CIT(A) has also provided opportunity to the range head to direct the assessing officer to furnish specific report on the issue. However, the assessing officer has referred seized document found from the possession of Suresh R. Patel partner pertaining to Aryamaan Scheme of Gajanand Corporation and stated that the same modus operandi was applied to the entire group. Therefore, the Id. CIT(A) held that the assessing officer has relied only and exclusively on material seized impounded from third party premises pertaining to the other cases for completing the assessment proceedings u/s. 153 A of the act in the case of the assessee and the assessing officer could not demonstrate that any incriminating material was seized from the assessee during the course of search to substantiate that assessee had collected on money on the sale of Unit of project namely Shayona Tilak-2 on 60/40 basis. In the light of the above facts and finding of Id. CIT(A), we do not find any infirmity in the decision of Id. CIT(A) after placing reliance on the decision of Hon’ble Jurisdictional High Court in the case of Saumya Construction 387 1TR 529 (Guj) wherein it is held that if in relation to any assessment year no incriminating material is found no addition or disallowance can be made in relation to that assessment year in exercise of power u/s. 153A of the Act. Therefore, these three grounds of appeal of the revenue are dismissed.

FULL TEXT OF THE ITAT JUDGEMENT

These four appeals filed by assessee for A.Y. 2011-12 to 2014-15, arise from order of the CIT(A)-12, Ahmedabad dated 20-02-2017, in proceedings under section 143(3) r.w.s. 153 A of the Income Tax Act, 1961; in short “the Act”.

2. All these four appeals are filed by the revenue against the order of Id. CIT(A)-12 Ahmedabad. Common issues on similar facts are involved in all these appeals filed therefore for the sake of convenience these appeals are adjudicated together by this common order by taking the facts of ITA No. 240/Ahd/2017 as lead case and its finding will be applicable to the remaining three cases in appeals of the Revenue.

IT(SS)A No. 240/Ahd/20l7

3. The assessee has raised following grounds of appeal:-

“. On the fuels and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/ or on fads in not appreciating the provisions of section 153A of the I.T. Act which requires the total income to be brought under tax without any restriction.

2. On the fads and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and or on facts in holding that such assessment or reassessment u/s 153A is to be restricted only to the incriminating materials found during the search.

3. On the fuels and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting addition on account of on money receipt / unrecorded sale consideration of Rs.3,18,79,334/-.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting addition on account of unaccounted investment u/s 69 of the C.I.T. Act of Rs.3,45,01,388/-.

5. On the fads and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and or on fads in deleting the disallowance u/s 40A(3) of the I. T. Act of Rs. 6,00,000/-.

6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

7. It is, therefore, prayed that the order of the Ld. CIT (A) be set aside and that of the A.O. be restored to the above extent. “

Grounds of Appeal No. 1 to 3:-

4. These grounds of appeal are based on similar facts and issue therefore these three grounds of appeal are adjudicated together. The fact in brief is that a search action u/s. 132 of the Income Tax Act was carried out in the group cases of Shayona Group on 15^th October, 2013. The assessing officer has issued notice u/s. 153A of the act on 26^th October, 2014. In response, the assessee has submitted vide letter dated 17^th Nov, 2014 that its original return of income filed on 29^th Sep, 2008 be considered as filed u/s. 153A of the act. During the course of assessment, the assessing officer noticed that assessee as developer has developed Shayona City and Shayona Estate. The assessee firm has completed “Shayona Tilk-2” and its possession was handed over to the member during the year under consideration as follows:-

The assessing officer was of the view that assessee had adopted the similar modus operandi of not disclosing on money receipt on sale of units of project Shayona Tilak-2 as adopted in the other scheme of the group. The assessee was asked to furnish the complete bill and also show cause as to why Rs. 3,18,79,334/- should not be treated as on-money being 40% of Rs. 100/- received as unrecorded sale similar to the Aaryamaan Scheme of Gajanand Corporation. The assessee objected observation made by the assessing officer and contended that no incriminating material/document relating to the aforesaid observation was found during the search and survey proceeding and no detail of such material was provided. The assessing officer has not accepted the explanation of the assessee and stated that a small pocket diary was found from the possession of Sri Sureshbhai R. Patel during the course of search proceedings pertaining to the “Aryamaan Scheme of Gajanand Corporation” and Gajanand Corporation have owned up this diary and disclosed “on money” which they had voluntarily disclosed and additions were made for the assessment year 2012-13 and 2013-14. The assessing officer has further stated in the Shayona Green Scheme of Narayan Developer various loose papers and documents were found and impounded wherein transaction of on money received in cash was reported. During the course of assessment the assessee was asked to furnish detail of the projects-block wise and flat wise in respect of ShyonaTilak. The assessing officer stated that there was variation in the rates per sq. yd. in flats of the same block situated on the same floor. The assessing officer was of the view that Shri Sureshbhai Patel one of the partner of the firm in respect of Aryamaan project has adopted modus operandi of sale for all projects like Aaryamaan of Gajanand Corporation, therefore, after taking into consideration the modus operandi adopted in the case of Aryamann Project, the assessing officer observed that assessee had received on money in respect of fixation of sale price of 34 units of Shayona Tilak-2 during the year under consideration. Therefore, the assessing officer stated that the assessee firm was also in receipt of on money in 60/40 ratio on the sale of above units of the project ShayonaTilak. Therefore, the assessing officer was of the view that actual sale consideration from the sale of above units of ShayonaTilk was at Rs. 7,96,98,3557- and the assessee has offered sale consideration for Rs. 4,78,19,0017- only therefore balance amount of Rs. 3,18,79,3347- being 40% of sale was treated as remained to be taxed. According, the same was added to the total income of the assessee.

5. Aggrieved assessee has filed appeal before the Id. CIT(A). The Id. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of Id. CIT(A) is as under:-

“9. I have carefully gone through the assessment orders, submissions filed by the appellant as also through the report submitted by the AO. Having done so, at the outset, I have no hesitation in unconditionally and unambiguously observing that the action of the Ld. AO in making the on-money addition in the hands of the appellant is based on absolutely no credible evidence. As such, in the face of the appellant’s submission before the AO as recorded by her on page no. 7 of the assessment order, it is wholly inconceivable as to how and why the Assessing Officer could proceed to make the addition of on-money receipt in the hands of the appellant. The method adopted by the AO for arriving at the estimate of “on-money receipts” is equally unusual and curious. The AO baselessly and without giving even a semblance of window to her mind, has arbitrarily come to a wholly ill-conceived conclusion that the recorded receipts represent 60% of the “actual receipts” so that the on-money receipt should amount to 66.66% of the recorded receipts. Even in the remand report, the Ld. AO has reiterated her references in the irrelevant seized/impounded documents, wholly unconnected with the appellant, referred lo by her in the assessment order, on wholly unfounded reasoning. I have noted that the AO has relied only and exclusively on material seized impounded from third party premises while remaining completely unmindful of the fact that the fundamental discipline of assessment proceedings u/s 153A, and indeed the basic law of evidence, requires that material seized only from the appellant’s premises can be made the foundation of the addition. The AO has, as rightly submitted by the AR, also remained oblivious to the fact that the fundamental principles of auidi alteram partem mandates a quasi-judicial authority like her to use, if at all. third party evidences only after first granting the opportunity of rebutting the contents/inferences from such third party evidences. The AO has a/so attempted to provide an apparent justification lo her action by using words and phrases like “the group is indulged in” or “the department has collected enough evidences” or “the facts and materials gathered during the search speak loudly about the modus operands’ of the group in collecting on-money in all their projects on 60:40 basis” without realizing that the concept of “group” is alien lo Income-tax Act, or to general law of evidence. The “modus operand/” of the “group” as conceived by AO lo have heen “unearthed” during the search, if at all so, would only be a starting point of further enquiry and investigation against the appellant by the AO and certainly cannot be an “evidence”, much less a conclusive evidence, against the appellant. There is no material gathered by the AO or unearthed during the search which can be considered adverse lo or against the appellant. 1 have therefore come to a considered conclusion that the additions of “on-money receipts” made by the AO for all the years under appeal are wholly baseless and unsupported by any credible evidence against the appellant and therefore not sustainable. Moreover, evidences themselves referred to bv the AO in the assessment orders, are not only irrelevant and therefore unusable against the appellant, they, even if held to be credible against I he appellant, also cannot justify or validate the addition made by the AO on presumptions and surmises at 66.66% of recorded receipts for each vear There is no valid or meaningful explanation as to on what basis the AO has held firstly thai receipt shown in the books by the appellant is only 60 % of the actual receipts. Similarly, there is no legally sanctified or factually supported basis with the AO to further hold that appellant has earned such unaccounted receipts for each of the years under appeal including those which remained unabated as on the date of the search. There is no presumption in law that all “group members” are following “modus operand! of one of the group members”. Similarly, there is no presumption in law that an assessee would continue, from year to year, to engage in and earn unaccounted income even if categorical evidences of such unaccounted earning by the very appellant for one year are also in AO’s possession. The AO’s extrapolation of “adverse inference” from year to year against the appellant on the basis of documents seized/impounded from wholly unrelated third parties and possibly (and if at all) relatable to only one of the years even against such third parties, by observing that “all these go lo prove thai the department has gathered plenty of evidences on the basis of which this conclusion is drawn” has no legal sanction. Thus, addition has no foundation except in suspicion and surmise of the AO. Suspicion, how-so-ever strong, cannot partake the character Of evidence, and, the AO is indeed obliged to positively bridge the gap between suspicion and evidence. I do not think firstly that the seized evidences referred to by the AO show anything beyond the fact that some on money is possibly charger by Gajanand Corporation in Aryaman Scheme, and by Narayan Developers in Shayona Green Scheme. The third document printed by the AO in the assessment order is merely projection that in, ShayonaPushp Scheme of PoojaBuitdcon, there is a receipt/likelihood of “extra-receipt” of Rs.4.08 crores as against “book-receipt” of Rs. 47.76 crores. The AO has conspicuously not shown at all or even argued as to why and how such “evidences”, even if possibly acceptable against the appellant for the rears under reference, would lead to a conclusion that 66.66% of the recorded amounts have been received as “on-money” by the appellant for the respective assessment years. The AO has referred to “wide variation” in the sale-price of flats as is evident from the Annexure to the assessment order. However, this “wide variation” cannot per se and in law, in the absence of categorical evidence of receipt of on-money by the appellant, be of any meaningful import. Moreover, the AO has not validly also rejected (and there does not also appear any basis or reason for that) the books of accounts u/s 145 so as to even enable her in estimating the income of the appellant U/S 144. Thus the addition of “on-money” receipt for each year is presumption and conjectural and is based on no evidence. The AO’s insistence in the remand report that the additions is made on the basis of “seized/impounded” material is also without any supporting document in as much as there is indeed no document seized form the appellant or elsewhere which even point to unaccounted receipt by the appellant for any of the years. I may conclude by observing that the addition of on-money receipts made by the AO for each year is conspicuously, patently and evidently founded on “no evidence” and is thus wholly without merit. Therefore I have no hesitation in deleting the same for each year under reference. Before parting with the issue, I would quote from the following Jurisdictional Tribunal and from Delhi High Court judgments relied upon by the AR, which instructively also refer to a scriesoj other Authorities and lay down a proposition oj law that while the AO is not fettered by the strict rules of evidence, he has, at the same time, no authority to act without any relevant material, and further, that even the “best judgment assessment” cannot also be based on mere suspicion or on pure guess work of the AO. As noted in the Delhi High Court judgement, the reliance on “notorious practices in the industry” of charging “on-money” has also been disapproved by the Apex Court. (Emphasis mine):

Discovery Estates (P.) Ltd. {2013) 31 taxmann.com ISO (Del)

“17. It only remains for us to refer to the observations of the assessing officer to the effect that no one makes a loss in real estate business and that the market perceptions indicate that the prices of the immoveable properties are always on the upward trend. These observations have, inter alia, formed the basis of the additions made, by the assessing officer. It was even suggested before us on behalf of the revenue that it is a “notorious practice” prevailing in real estate circles that in all property transactions there is nondisclosure of the full consideration. As pointed out earlier, this cannot per se constitute the basis of the addition, though we must hasten to add that it can very well be a starting point for further investigation. In LalchandBhagatAmbica Ram v. CIT /I959/ 37ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and .surmises or by taking note of the “notorious practice” prevailing in trade circles. 11 was observed as under:

“Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling fond grains and other commodities to Bengal by country boats acquired by Sahibgnnj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf.””

Budhalal& Co. /2O1I/1O taxmann.com 52 (Ahd.)

5. We have heard both the parties and gone through the facts of the case. Indisputably, GP rate in the year under consideration declined to 24.92 per cent vis-d-ufs28.13 per cent of the preceding year while the Id. CIT(A) concluded that the assessee had logically explained with elaborate reasons, the fall in GP during the year under consideration and the Assessing Officer did riot point out any specific defects in the books of account maintained by the assessee. We find from the assessment order that the Assessing Officer did not point out any defects in the hooks of account while ignoring the book results nor brought any material on record regarding the genuineness of purchases, sales or expenditure incurred by the assessee before discarding the book results Hon’bleGauhaii High Court in Aluminium Industries (P.) Ltd. v. CIT (1995] 80 Taxman 184 observed that a lower rate of gross profit declared by the assessee as compared to the previous year, would not in- itself be sufficient to justify any addition. The mere fact that the percentage of loss or gross profit is high or low in a particular year does not necessarily lead to inference that there has been suppression. Low profit is neither a circumstance nor material to justify addition of profits. The ratio of the judgments in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SO; RaghubarMandalHariharMandalv. State ofBihar [195′] 8 STC 770 (SO: State of Keralav. C. Vetukutty [19661 60 ITR 239 (SO; State of Orissav. Maharaja Shr/B.P. Singh Deo [197Q] 76 ITR 690 (SC); BrijBhusanLalPardimian Kumar \: CIT [197$; 7/5 //« 524 (SC): ChouthmalAganvallav. CIT [1962] 46 ITR 262 (Assam): R.V.S. & Sons Dairy Farmv. CIT[20O2) 257 ITR 764/[2003] 130 Taxman 615 I Mad.): International Forest Co. v. CIT [1975! 101 ITR 721 (J. & K.): M. Durai Raj r. CIT [1V2] 83 ITR 484 (Ker); RamchandraRamnivas v. State of Orissa [1970] 25 STC 501 (Orissa): Action Electricals v. Dy. CIT [2002] 258 ITR 188/[2003] 132 Taxman 640 <Delhi) and Kama/ Kumar Saharia v. CIT [1995) 216 ITR 2I7/[I999> 73 Taxman 229 (Can.) indicate that the Assessing Officer is not fettered by any technical rules of evidence and pleadings, and he is entitled to act on material which are not acceptable in evidence in a court of law, but while making the assessment under the principles of best judgment, the Income-tax Officer is not entitled to make a pure guess without reference to any evidence or material. There must be something more than a mere suspicion to support the assessment. Low profit in a particular year in itself cannot he a ground for invoking the powers of best judgment assessment without support of any material on record. The Hon’ble Gujarat High Court in the case of CIT v. AmiibhaiGunavantbhai [1981] 129 ITR 373 held that if there was no challenge lo the transactions represented in the brinks then it is not open to revenue to contend that what is shown by the entries is not the real state of affairs. Secondly, even if for some reason, the books are rejected it is not open to the Assessing Officer to make any addition on estimate basis or on pure guess work. The Assessing Officer, without recording any finding that the books of account maintained by the assessee were incorrect, rendering it impossible lo deduce the profits, proceeded to reject the book results, invoking, the provisions of section 145 of the Act. No specific discrepancies or defects in the books of account of the assessee have been pointed out before us nor was any material brought lo our notice to establish tlinlpnrrbH.sr.s were inflated or receipts suppressed. In these circumstances, there was no justification in invoking the provisions of section 145 of the Act [CIT v. Vikram Plastics [1999] 239 ITR161 (Guj.). Since the Assessing Officer had not recorded any findings for rejecting the book results and applying the gross profit rate of 26 percent in the year under consideration, we arc of the opinion that the Id. CIT(A) was justified in deleting the addition. Even the revenue have not placed before us any material con/rover/ing the aforesaid findings of facts recorded />r the Id CITlA). If there was no challenge to the transactions represented in the books, then it is not open to revenue to contend that what is shown by the entries is not the real stale of affairs. In the light of these observations of the Hon’blejurisdiclional High Court, we uphold the findings of the Id. CIT(A). Consequently, grounds No. I and 2 are dismissed.

10. Thus, the following additions .of on-money receipts are deleted. Ground 5 (or equivalent) is allowed for all the four appeals:

6. During the course of appellate proceedings before us, the Id. D.R. has contended that search action u/s. 132 of the act was carried out in the group cases of Shayona Group on 15^th October, 2013. The main project developed by the assessee during the year were Shayona Estate and Shayona City. The Id. D.R. has submitted modus operandi in respect of fixation of sale price as well as for on sale consideration was similar for entire Shayona group as well as connected group to the assessee, therefore, the assessee firm was also in receipt of on money in 60/40 ratio and Id. CIT(A) has incorrectly deleted the addition. On the other hand, Id. authorized representative has supported the order of Id. C1T(A) and referred the various paras of finding given by the Id. CIT(A) and submitted that the issue in the appeal of the assessee is fully covered by the decision of Hon’ble Jurisdictional High Court in the case of Saumya Construction 387 ITR 529(Guj). The Id. counsel has also referred page no. 6 of the CIT(A) order and stated that Id. CIT(A) during the course of appellate proceedings has clearly communicated to the range head vide letter dated 1^st December, 2016 that no incriminating material was seized in the unabated assessment framed u/s. 153A of the Act and stated that assessing officer may be directed to report the particular specific seized document and how these documents were incriminating in nature. On receipt of the reply of the assessing officer, the Id. CIT(A) has clearly stated at page no. 7 of the appellate order that the assessing officer has relied exclusively only on material seized/impounded from third party premises without considering that for assessment proceedings u/s. 153A only the seized material found from the premises of the assessee can be made the foundation of the addition. The Id. counsel has referred the finding of Id. CIT(A) that there is no presumption in law that all group members are following modus operandi of one of the group members. Similarly there is no presumption in law that assessee would continue from year to year to engage in and earn unaccounted income even if categorical evidence of such unaccounted earning by the very assessee for one year are also in assessing officer’s possession. The Id. counsel has stated that the addition of on money receipt made by the assessing officer was not based on evidences, therefore, the whole addition was made without any merit.

7. We have heard both the sides and perused the material on record. The assessee was engaged in the business of development and construction. There was a search action u/s. 132 of the Act carried out on 15^l October, 2013 in the case of the assessee. During the course of assessment, the assessing officer noticed that assessee has worked as developer for Shayona City and Shayona Estate. The assessing officer stated that in the group cases of other project pertaining to Aryamaan Scheme of Gajanand Corporation there was on money receipt which was voluntarily disclosed and additions were made for assessment year 2012-13 and 2013-14. In short there was a 60/40 ratio of actual sale receipt meaning that Rs. 60 out of 100 was booked in the books of account and offered for tax balance 40 was being taken either in cash or in any kind in the form of on money. On the basis of incriminating document seized in the case of the group cases the assessing officer was of the view that entire Shayona Group as well as connected group to the assessee firm was indulged in receipt of on money in 60/40. Therefore, the assessing officer has computed Rs. 3,18,79,334/- being on money received in cash and added to the total income of the assessee. The assessee challenged the impugned addition before the Id. CIT(A) that assessing officer has made said addition in the absence of incriminating document seized from the assessee. The Id. CIT(A) has categorically stated regarding diary seized from Sureshbhai R. Patel and the assessing officer has herself stated that recording in the diary was pertained to receipt from sale of flats pertaining to Aryamaan scheme of Gajanand Corporation. Obviously these documents did not belong to the assessee firm. The other document which was referred by the assessing officer was pertained to M/s. Narayan Developer not seized from the assessee. On the basis of other group cases, the assessing officer has stated that modus operand! of the assessee was also the same that the sale consideration was recorded at Rs. 60 as against the actual sale receipt of Rs. 100/-. In order to get clarification about incriminating document seized from the assessee the Id. CIT(A) has also provided opportunity to the range head to direct the assessing officer to furnish specific report on the issue. However, the assessing officer has referred seized document found from the possession of Suresh R. Patel partner pertaining to Aryamaan Scheme of Gajanand Corporation and stated that the same modus operandi was applied to the entire group. Therefore, the Id. CIT(A) held that the assessing officer has relied only and exclusively on material seized impounded from third party premises pertaining to the other cases for completing the assessment proceedings u/s. 153 A of the act in the case of the assessee and the assessing officer could not demonstrate that any incriminating material was seized from the assessee during the course of search to substantiate that assessee had collected on money on the sale of Unit of project namely Shayona Tilak-2 on 60/40 basis. In the light of the above facts and finding of Id. CIT(A), we do not find any infirmity in the decision of Id. CIT(A) after placing reliance on the decision of Hon’ble Jurisdictional High Court in the case of Saumya Construction 387 1TR 529 (Guj) wherein it is held that if in relation to any assessment year no incriminating material is found no addition or disallowance can be made in relation to that assessment year in exercise of power u/s. 153A of the Act. Therefore, these three grounds of appeal of the revenue are dismissed.

Ground No. 4 (Unaccounted investment u/s. 69 of Rs. 3,45,0 1, 388/-)

8. During the course of assessment, the assessing officer has noticed that a survey action u/s. 1 33 A was conducted on shop no. 22/23 Shayona Complex, Ahmedabad and various documents pertaining to land transaction were found and impounded. As per the banakhat there was noting of sale consideration of Rs. 4,57,41,388/- between Shri Ramesh Nagjibhai Desai (seller) and Shri Suresh Kr. Ranchhodbhai Patel. However, the final sale deed was executed for Rs. 1,12,40,000/- in favour of the assessee firm. This issue was confronted while recording a statement of Shri Suresh Ranchhodbhai Patel on I0^lh December, 2013 and he has explained that said banakhat was cancelled. The assessing officer has not agreed with the aforesaid explanation. The A.O. was of the view that actual sale consideration of land cannot be less than Rs. 4.57 crores as mentioned in the banakhat as against the sale consideration reported in the sale deed Rs. 1.12 crores. Therefore, the assessing officer was of the view that difference in the two documents to the amount of Rs. 3,45,01,388/- was paid by the assesseee firm in cash to the seller of the land. Therefore, an amount of Rs. 3,45,01,388/- was added to the total income of the assessee.

9. Aggrieved assessee filed appeal before the Id. CIT(A). The Id. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of Id. CIT(A) is as under:-

“12. I have perused the relevant material on record. I have also gone through the impounded document A-l page 72-79 available on page no.39-45 of the paper book. My perusal of the document has indicated that the Ld. AR is absolutely right that there is no mention or reference of the appellant in the said document and therefore, the Ld. AR is also right that the document has no express or implied relevance or incriminality vis-a-vis the appellant. Moreover, and in any case, the Ld. AR has undertaken on behalf of Shri Sureshbhai Patel that the document is executed by, relevant to, and shall be duly explained in the case of Shri Sureshbhai Patel in whose case also the appellate proceedings are also under way. In any case, I am otherwise also completely al a loss in digesting the insistence of the AO in drawing an adverse inference against the appellant on the basis of a document impounded from a third parry to which the appellant is a “complete stranger” from all angles, and in bringing the amount of “unaccounted investment” to tax in appellant’s hands. I also do not appreciate, as rightly submitted by the AR, that when the prima facie cash unaccounted payment recorded in the document is only Rs. 1.8 crore, how the AO has considered the higher addition of Rs. 3,45,01, ,388/- without bringing in any further evidence and without any application of mind to the facts on record. Be that as it may, I have come to a considered conclusion that if at all any amount is required to be brought to tax, and can be brought to tax in law, the right accountable hands are those of the executor of the document or the party from whom the document is impounded/seized, and certainly not a party wholly and completely a stranger to the document. Thus, I have no hesitation in holding that there is no merit in the addition as made by the A O and in any case the import of seized/impounded material has to be considered in the case of Shri Sureshbhai Patel who is not only the signatory to the said document but who has also undertaken to be fully liable for tax liability, if any in law, arising on account of the said document without taking a plea that the transaction pertains to the appellant firm. Thus, the addition of Rs,3,45,01,388/- is deleted. Ground 6 succeeds. “

10. During the course of appellate proceedings before us. the Id. departmental representative has submitted that assessing officer has correctly made the protective addition in the case of the firm since the payments have been made by the partners. On the other hand, Id. authorized representative has referred the finding of Id. CIT(A) as per page no. 10 to 12 of the CIT(A) order and stated that Id. CIT(A) has correctly held that no addition can be made in the case of the firm as the said document ‘banakhat’ was pertained to the partner, Shri. Suresh R. Patel and not executed by the partnership firm and the same was not connected to the assessee firm.

11. We have heard both the sides and perused the material on record. During the course of survey u/s. 133 A carried out along with action u/s. 132 of the act a document as banakhat between a seller Shri R. N. Desai and purchaser Shri Suresh R. Patel was impounded from the shop no. 22/23 of Shayona Complex. It is stated that in the banakhat that an amount of Rs. 1.8 crores in cash has been paid by Shri Suresh Patel to Shri R.N. Desai at the time of execution of the said banakhat. As per the banakhat the total consideration of the land was at Rs. 4,57,41,388/-. Therefore, the assessing officer has added the differential amount of Rs. 3,45,01,388/- in the case of assessee firm on protective basis u/s. 69 of the Act. In the light of the above facts and finding of Id. CIT(A) it is undisputed fact that the said document was belonged to ShriSureshbhai Patel which he had executed in individual capacity. There was no mention of making of any payment by the assessee firm. Therefore, we consider that Id. CIT(A) has correctly deleted this protective addition holding that assessee firm was not a party and completely stranger to the document. Therefore, this ground of appeal of the revenue is also dismissed.

Ground No. 5 (Disallowance u/s. 40A(3) of the act of Rs. 6 lacs

12. During the course of assessment, the assessing officer noticed that assessee has made cash payment of Rs. 6 lacs towards purchase of land at R.S. No.210/2 vide order sheet entry dated 19^th Feb, 2016. The assessing officer stated that the purchased land was part of the stock in trade and assessee has failed to furnish reasonable cause for payment made in cash. Therefore an amount of Rs. 6 lacs was added to the total income of the assessee after invoking the provision of Section 40A(3) of the act r.w.r. 8DD of the IT Rule.

13. The assessee has preferred appeal before the Id. CIT(A). The Id. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of Id. CIT(A) is as under:-

“13. The next addition for A. Y. 2OI1-12 is of Rs. 6,OO,OOO/-made by the AO u/s 40A(3) fur payment in cash to landowners for purchase of land at survey number 210/2. In response to show-cause notice, the appellant submitted to the AO that the payment to agriculturists is saved by Rule 6DD. The AO observes that the appellant did not discharge the onus of showing how rule 6DD applies, and further, 2 land purchased is stock-in-trade of the appellant” and is therefore hit by s. 40A(3) and thus she makes addition. The Ld. AR brought my attention to the fact that the amount of whole of the purchase price for the land at survey number 210/2 has been shown in the Balance-sheet under the head “Deposits and Advances”, the amount has not been debited to the P & L Account and therefore, the AO is wrong in observing that the land in question is “stock-in-trade”. The Ld AR also drew my attention to page 13 (Balance sheet) and page 60-61 (Land Account) of PB to highlight that the amount of payment has not been debited to P&L account to be validly hit by provisions of S~. 40A(3). Alternatively, the AR submitted that the payments are to agriculturists insisting for cash-payment and hence the transaction is saved by Rule 6DD. After considering the material on record, I first observe that the addition is based on no seized material but is based entirely and evidently on the accounts which stood filed before the date of the search. Second, the AO is wrong in her conclusion that the “land is stock in trade”, and the AR is right that the amount of payment has not been debited to the P&L account but is standing as advance against land as per schedule 6 to balance-sheet as on 31/3/2013 at Rs. 1,82,56,45(l/-. Section 40A(3) enables disallowance from the expenses claimed, and thus has no applicability to “advances towards land not debited to P&L account”. Addition of Rs. 6,00,000/-being without merit is deleted. Ground 7 succeeds. “

14. We have considered rival contention on this issue and perused the material on record. In the light of the facts elaborated by the Id. CIT(A) in his finding the whole of the purchase price for the land at serial no. 210/2 has been shown in the balance sheet under the head deposits and advances and the amount has not been debited to the P & L account. Therefore, the provision of section 40A(3) has been wrongly applied by the assessing officer. Considering the above facts that land was not stock in trade as the same was shown in the balance sheet therefore we do not find any infirmity in the decision of Id. CIT(A). Therefore this ground of appeal of the revenue is dismissed.

IT(SS)A No. 241 /Ahd/2017 Ground No. 1 to 3

IT(SS)A No. 242/Ahd/2017 Ground No. 1 to 3

IT(SS)A No. 243/Ahd/2017 Ground No. 1 to 3

15. These three different grounds of appeal for assessment year 2012-13 to 2014-15 filed against the decision of Id. CIT(A) in allowing the claim of assessee that no incriminating materiel was found during the course of search.

In view of the detailed reasons and findings given on the similar issue in grounds no. 1 to 3 vide IT(SS)A No. 240/Ahd/2017 as discussed supra in this order we do not find any infirmity in the decision of the Id. CIT(A), therefore, these different grounds of appeal for assessment year 2012-13 to 2014-15 of the Revenue are dismissed.

ITA No. 242/Ahd/2017

Ground No. 4 Disallowance u/s. 40A(3) of Rs. 56 lacs for A.Y. 2013-14  16.

16. During the course of assessment, the assessing officer noticed that the assessee has made cash payment of Rs. 56 lacs towards purchase of land at R. S No. 413/1 Gota. On query, the assessee explained that seller was the farmer who had demanded the payment in cash instead of cheque therefore question of disallowance u/s. 40A(3) did not arise. The assessing officer has not accepted the assessee’s explanation and disallowed the amount stating that assessee has failed to furnish any evidence to justify that Rule 6DD is applicable to his case.

17. Aggrieved assessee has filed appeal before the Id. CIT(A). The Id. CIT(A) has allowed the appeal of the assessee stating that on verification of the annual accounts of the assessee, it is revealed that the amount has not been debited to P & L account, therefore, the same cannot be disallowed u/s. 40A(3)of the act.

18. We have heard the rival contention on this issue and perused the material on record. The Revenue could not disprove the undisputed fact reported by the Id. CIT(A) that the aforesaid amount has not been debited to P & L Account, therefore, we do not find any error in the decision of the Id. CIT(A). Accordingly, this ground of appeal of the Revenue is dismissed.

19. In the result, all the four appeals filed by the revenue are dismissed. Order pronounced in the open court on 19-08-2020