M/s Aruna Estates, Vizianagaram v. The DCIT, Central Circle-1(1), Visakhapatnam

ITSSA 91/VIZ/2002 | misc
Pronouncement Date: 15-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 9125316 RSA 2002
Assessee PAN TEDIN1991A
Bench Visakhapatnam
Appeal Number ITSSA 91/VIZ/2002
Duration Of Justice 7 year(s) 9 month(s) 29 day(s)
Appellant M/s Aruna Estates, Vizianagaram
Respondent The DCIT, Central Circle-1(1), Visakhapatnam
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 15-03-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 15-03-2010
Assessment Year misc
Appeal Filed On 17-05-2002
Judgment Text
PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER IT(SS)A NO.91.VIZAG/2002 BLOCK PERIOD: 1.4.1988 TO 3.9.1998 M/S ARUNA ESTATES SRIKAKULAM VS. DCIT CENTRAL CIRCLE-1 VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO. A-312 APPELLANT BY: SHRI C.V.S. MURTHY CA RESPONDENT BY: SHRI SUBRATA SARKAR CIT( DR) ORDER PER SHRI B R BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 08-03- 2002 PASSED BY THE LD CIT (A)-I HYDERABAD AND IT RE LATES TO THE BLOCK PERIOD 1.4.1988 TO 3.9.1998. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DIRECTED AGAINST A SINGLE ISSUE VIZ. WHETHER THE LD CIT (A) IS JUSTI FIED IN DETERMINING THE UNDISCLOSED INCOME AT RS.9 04 060/- BY MAKING AD HO C ESTIMATE OF 20% OF LAND DEVELOPMENT EXPENDITURE. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN B RIEF. THE ASSESSEE A PARTNERSHIP FIRM IS ENGAGED IN REAL ESTATE BUSINES S. SHRI H. KIRAN KUMAR IS ITS MANAGING PARTNER. THE ASSESSEE FIRM ACQUIRED V AST AREAS OF LAND AT TWO PLACES AND DEVELOPED HOUSING PLOTS BY NAME ASHOK NA GAR AND GAUTAMI NAGAR. THE LAND AT GAUTAMI NAGAR WAS DIVIDED INTO 553 PLOTS AND THE LAND AT ASHOK NAGAR WAS DIVIDED INTO 251 PLOTS. THE PLO TS WERE PROPOSED TO BE SOLD UNDER A SCHEME BY WHICH THE PROSPECTIVE BUYER HAS TO PAY THE COST OF PAGE 2 OF 7 PLOT IN 60 MONTHLY INSTALMENTS OF RS.300/- EACH. E VERY MONTH THE ASSESSEE FIRM WILL CONDUCT A LUCKY DRAW AND THE WINNER NEED NOT PAY THE FUTURE INSTALMENTS. THE GAUTAMI NAGAR VENTURE WAS STARTED IN 1991 AND 700 MEMBERS WERE ENROLLED FOR SALE OF 553 PLOTS. THE A SHOK NAGAR VENTURE WAS STARTED IN 1992 AND 397 MEMBERS WERE ENROLLED FOR S ALE OF 251 PLOTS. THUS THE ASSESSEE FIRM ENROLLED 1097 MEMBERS FOR SALE OF 804 PLOTS. IT MAY BE NOTED HERE THAT THE MANAGING PARTNER ALONG WITH SOM E OTHER PERSONS CONSTITUTED ANOTHER PARTNERSHIP FIRM IN THE SAME NA ME M/S ARUNA ESTATES AND DEVELOPED HOUSING PLOTS UNDER THE NAME GANDHI NAGAR PLOTS. THOUGH DURING THE COURSE OF SEARCH THE ESTIMATED PROFIT F ROM ALL THE THREE VENTURES WERE WORKED OUT THE LD CIT(A) HAS CATEGORICALLY HE LD THAT THE GANDHI NAGAR PLOTS HAVE BEEN DEVELOPED BY ANOTHER FIRM. THE LD CIT(A) HAS ALSO NOTED THAT AO DID NOT TAKE INTO ACCOUNT THE TRANSACTIONS RELATING TO THE GANDHI NAGAR PLOTS FOR THE PURPOSE OF DETERMINING THE UNDI SCLOSED INCOME OF THE ASSESSEE. HENCE THE INITIAL CONFUSION REGARDING TH E GENUINENESS OF THE ANOTHER FIRM HAS NOW BEEN SETTLED. 4. SEARCH AND SEIZURE OPERATIONS WERE CARRIED ON IN THE HANDS OF SHRI H. KRISHNA RAO FATHER OF THE MANAGING PARTNER OF THE FIRM SHRI H. KIRAN KUMAR ON 3.9.1998. DURING THE COURSE OF SEARCH OPERATION S CERTAIN INCRIMINATING MATERIALS PERTAINING TO THE FIRM IN THE FORM OF LOO SE SLIPS WERE FOUND. ACCORDINGLY A NOTICE U/S 158BD R.W.S. 158BC OF THE ACT WAS ISSUED TO THE ASSESSEE. IN RESPONSE THERETO THE ASSESSEE FIRM FIL ED THE RETURN OF INCOME FOR THE BLOCK PERIOD ADMITTING NIL INCOME. FROM THE LOOSE SLIPS SEIZED BY THE DEPARTMENT IT WAS NOTICED THAT THE TOTAL COLLECTIO NS FROM 8-11-1991 TO 20-7- 1996 WAS RS.75 90 132/-. THE TOTAL EXPENSES AS NOTE D IN THE SEIZED SLIPS STOOD AT RS.24 03 264/-. THUS THE NET COLLECTION FR OM THE SEIZED MATERIAL WAS ARRIVED AT RS.51 86 868/- ( RS.75 90 132 (-) RS .24 03 264/-). THOUGH DURING THE COURSE OF SWORN STATEMENT AN ESTIMATED WORKING OF PROFIT PERTAINING TO THE GAUTAMI NAGAR PLOTS ASHOK NAGAR PLOTS AND GANDHI NAGAR PLOTS WERE MADE AT RS.35.00 LAKHS THE AO PREFERRED TO ADOPT THE NET PAGE 3 OF 7 COLLECTION OF RS.51 86 868/- REFERRED ABOVE AS THE UNDISCLOSED INCOME OF THE ASSESSEE. 5. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT (A). THE FIRST APPELLATE AUTHORITY NOTED THAT THE C OLLECTION AND EXPENSES RECORDED IN THE SLIPS ARE IN RESPECT OF ONLY ONE PR OJECT VIZ. GAUTAMI NAGAR PLOTS AND THAT TOO FOR A PART PERIOD. BEFORE THE L D CIT(A) THE ASSESSEE THE LD CIT(A) NOTICED THAT THE ASSESSEE FIRM HAD SOLD 1 54 PLOTS UP TO THE DATE OF SEARCH IN GAUTHAMI NAGAR. BEFORE THE LD CIT (A) T HE ASSESSEE FILED A PROFIT AND LOSS ACCOUNT UPTO THE PERIOD OF THE SEARCH WHE RE FROM IT WAS NOTICED THAT THE ASSESSEE HAD INCURRED A SUM OF RS.45 23 18 5/- TOWARDS VARIOUS TYPES OF EXPENDITURE. THE LD CIT (A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE THAT THERE WAS NO INFLATION OF EXPENDITURE SINCE THE EXPENDITURE DEBITED BY THE ASSESSEE REMAINED UNVERIFIED. ACCORD INGLY THE LD CIT (A) ESTIMATED THE INFLATION OF EXPENDITURE AT 20% OF TH E TOTAL EXPENDITURE AND DIRECTED THE AO TO TREAT THE SAME AS UNDISCLOSED IN COME OF THE ASSESSEE. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE U S. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. IT IS PERTINENT TO NOTE HERE THAT THE ASSESSMENT IN THIS CASE HAS BEEN CARRIED OUT U/S 158BD R.W.S. 158BC OF THE ACT. DURING THE COURSE OF SEARCH IN THE HANDS OF SHRI H. KRISHNA RAO THE FATHER OF THE MAN AGING PARTNER OF THE ASSESSEE FIRM CERTAIN DOCUMENTS IN THE FORM OF LOO SE SLIPS WERE FOUND. THE AO IS ON RECORD THAT THE BOOKS OF ACCOUNT OF THE AS SESSEE FIRM WERE ALSO MAINTAINED IN THAT PLACE. FURTHER THE AO HAS ALSO OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM FOR THE YEAR ENDING 31.3.1998 WAS NOT FOUND CLOSED ON THE DATE OF SEARCH. DESPITE THE AVAILABI LITY OF THE BOOKS OF ACCOUNT THE ASSESSEE FIRM DID NOT FILE ITS RETURN OF INCOME FOR THE EARLIER YEARS TILL THE DATE OF SEARCH. PAGE 4 OF 7 4.1 AS PER THE SCHEME OF SALE OPERATED BY THE A SSESSEE FIRM THE ASSESSEE COLLECTS INSTALMENTS FROM THE VARIOUS PRO SPECTIVE BUYERS OF THE PLOT. IT IS ALSO AN ADMITTED FACT THAT THE COLLECTI ONS HAVE BEEN MADE FROM 1097 MEMBERS WHERE AS THE AVAILABLE PLOTS WERE ONL Y 804. HENCE THE ASSESSEE IS REQUIRED TO REFUND THE AMOUNT DEPOSITED BY SOME OF THE MEMBERS OR IT HAS TO IDENTIFY SOME MORE LANDS FOR A LLOTTING THE PLOTS TO THE EXCESS MEMBERS. THUS THERE IS MERIT IN THE CONTEN TION OF THE ASSESSEE THAT THE ENTIRE COLLECTIONS MADE BY IT CANNOT BE TREATED AS ITS INCOME. THE CONTENTION OF THE ASSESSEE IS THAT THE POINT OF ACC RUAL OF INCOME IS THE POINT OF EXECUTION OF CONVEYANCE DEED IN FAVOUR OF THE BU YERS. TILL SUCH TIME THE COLLECTIONS REMAIN THE LIABILITY OF THE ASSESSEE. 4.2 ACCORDING TO THE ASSESSEE THE COLLECTIONS FOUND RECORDED IN THE LOOSE SLIPS ARE VERY MUCH AVAILABLE IN THE BOOKS OF ACCOU NTS REGULARLY MAINTAINED BY THE ASSESSEE. THE SAID COLLECTIONS ARE ONLY PAR T OF COLLECTIONS MADE FROM THE GAUTAMI PLOTS VENTURE. SIMILARLY THE EXPENDITU RE NOTED IN THE LOOSE SLIPS ARE ALSO ONLY A PART OF THE TOTAL EXPENDITURE INCUR RED BY THE ASSESSEE. THE COST OF LAND WHICH IS THE MAJOR EXPENDITURE WAS N OT FOUND RECORDED IN THE LOOSE SLIPS. THE ASSESSEE IS CONDUCTING A LUCKY DR AW EVERY MONTH AND THE WINNER IS NOT REQUIRED TO REMIT SUBSEQUENT INSTALME NTS. THE EXPENDITURE ON THAT ACCOUNT WAS ALSO NOT FOUND RECORDED IN THE LOO SE SLIPS. ACCORDINGLY THE ASSESSEE HAS CONTENDED THAT IT IS WRONG ON THE PART OF THE AO TO ASSUME THAT THE DIFFERENCE BETWEEN THE COLLECTIONS AND EXP ENSES NOTED IN THE LOOSE SLIPS REPRESENT THE UNDISCLOSED INCOME OF THE ASSES SEE. WE FIND MERIT IN THIS CONTENTION OF THE ASSESSEE. THE AO HAS NO WHERE ES TABLISHED THAT THE COLLECTIONS NOTED IN THE LOOSE SLIPS REPRESENT THE UNRECORDED COLLECTIONS OR EXTRA CONSIDERATION. 4.3 WITH REGARD TO THE POINT OF ACCRUAL OF INCO ME WE NOTICE THAT THE ASSESSEE HAS SUBMITTED IN ITS REPLY FILED BEFORE TH E AO ON 7.8.2000 THAT THE INCOME ARISES ONLY ON THE REGISTRATION OF PLOTS TO THE MEMBERS. THE AO HAS PAGE 5 OF 7 NOT MADE ANY COMMENT WITH REGARD TO THE METHOD OF A CCOUNTING FOLLOWED BY THE ASSESSEE. HENCE ACCORDING TO THE METHOD OF ACC OUNTING FOLLOWED BY THE ASSESSEE THE MONTHLY COLLECTIONS MADE BY THE ASSES SEE WOULD REMAIN THE LIABILITY OF THE ASSESSEE TILL THE PLOTS ARE REGIST ERED IN FAVOUR OF THE BUYERS. 4.4 FROM THE ASSESSMENT ORDER WE NOTICE THAT TH E AO HAS OBSERVED THAT THE REGULAR BOOKS MAINTAINED BY THE ASSESSEE CANNOT BE RELIED UPON TO ARRIVE AT THE CORRECT INCOME OF THE FIRM AS THE EXP ENSES ARE INFLATED. IT IS A WELL ESTABLISHED PROPOSITION THAT IN A BLOCK ASSESS MENT PROCEEDING THE AO HAS TO RESTRICT HIMSELF TO THE SEIZED MATERIALS. T HE SAID SCOPE OF ASSESSMENT HAS TO BE SCRUPULOUSLY FOLLOWED IN THE PROCEEDING I NITIATED U/S 158BD OF THE ACT. HENCE THE QUESTION OF RELIABILITY OF THE BOOK S OF ACCOUNT DOES NOT ARISE IN A BLOCK ASSESSMENT PROCEEDING AND HENCE THE AO H AS PROCEEDED IN A WAY WHICH IS NOT IN ACCORDANCE WITH THE SCHEME OF BLOCK ASSESSMENT PROCEEDING. THE AO HAS NOT MENTIONED ANY WHERE THAT THE COLLECT IONS NOTED IN THE LOOSE SLIPS ARE NOT RECORDED IN THE REGULAR BOOKS OF ACCO UNT NOR IT REPRESENTS EXTRA CONSIDERATION. THE AO HAS NOT MADE ANY ATTEMPT TO COMPARE THE EXPENDITURE NOTED IN THE LOOSE SLIPS WITH THE BOOKS OF ACCOUNT TO PROVE THAT THE EXPENDITURE RECORDED IN THE BOOKS OF ACCOUNT AR E FALSE. RATHER THE AO HAS PLACED MORE RELIANCE ON THE STATEMENT OF THE AS SESSEE GIVEN AT THE TIME OF SEARCH. HOWEVER THE ESTIMATE OF INCOME MADE IN THE SWORN STATEMENT SUFFERS FROM MANY FALLACIES. ALL THE FIGURES RELAT ING TO THE COLLECTIONS AND EXPENSES HAVE BEEN ESTIMATED. EVEN THE COLLECTIONS RELATING TO THE GANDHI NAGAR PLOTS WERE INCLUDED WHERE AS IT IS NOW AN AC CEPTED FACT THAT THE SAID PLOTS BELONG TO ANOTHER FIRM. THE POINT OF ACCRUAL OF INCOME WAS NOT CONSIDERED AND ALL THE COLLECTIONS WERE TAKEN AS GR OSS RECEIPTS. IN FACT THE EXPENSES OF RS.15.00 LAKHS CLAIMED TO HAVE BEEN NOT RECORDED IN THE BOOKS OF ACCOUNT HAVE BEEN GIVEN DEDUCTION. FURTHER THE ESTIMATES WERE MADE ORALLY WITHOUT MAKING ANY REFERENCE TO ANY MATERIAL AND THAT TOO DESPITE THE FACT THAT THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT. ALL THESE FALLACIES GO TO SHOW THAT ONE CANNOT GIVE MUCH CRED ENCE TO THE SAID PAGE 6 OF 7 ESTIMATE. EVEN THE AO HAS NOT GIVEN CREDENCE TO TH E SAID ESTIMATE AND HENCE PROCEEDED TO ESTIMATE THE UNDISCLOSED INCOME FROM THE LOOSE SLIPS. HOWEVER AS STATED EARLIER HE HAS FAILED TO MAKE A NY REFERENCE TO THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. 4.5 THE LD CIT(A) HAS PROCEEDED TO QUANTIFY THE INFLATION OF EXPENDITURE BY MAKING AN ESTIMATE OUT OF THE TOTAL EXPENDITURE. AS STATED EARLIER HE HAS NOT MADE REFERENCE TO ANY OF THE SEIZED MATERIAL WH ICH COMPELLED HIM TO MAKE SUCH AN ESTIMATE. IT IS NOW WELL ESTABLISHED PROPOSITION THAT IF REGULAR BOOKS OF ACCOUNT ARE MAINTAINED THE VERACITY OF T HE ENTRIES RECORDED IN THE BOOKS OF ACCOUNT CAN BE VERIFIED ONLY IN THE REGULA R ASSESSMENT PROCEEDING. ANY VERIFICATION OF SUCH ENTRIES CAN BE MADE ONLY I F THE DEPARTMENT COULD STUMBLE UPON SOME INCRIMINATING MATERIAL TO DOUBT T HE GENUINENESS OF SUCH ENTRIES. HENCE THE LD CIT(A) IS ALSO WRONG IN LAW IN MAKING SUCH ESTIMATE. 4.6 BUT THE ADMITTED FACT IS THAT THE ASSESSEE DID NOT FILE ANY RETURN OF INCOME TILL THE DATE OF SEARCH THOUGH IT HAS MAINTA INED REGULAR BOOKS OF ACCOUNT. IN THE BLOCK RETURN THE ASSESSEE HAS SHOW N LOSS OF RS.73 840/- AND RS.18 360/- FOR THE ASSESSMENT YEARS 1997-98 AN D 1999-2000 RESPECTIVELY. IT HAS SHOWN AN INCOME OF RS.64 090/- FOR THE ASSESSMENT YEAR 1998-99. AS ON THE DATE OF SEARCH (I.E. ON 3 .9.98) THE DUE DATE FOR FILING RETURN OF INCOME HAS EXPIRED FOR THE ASSESSM ENT YEARS 1997-98 AND 1998-99. AS PER SECTION 158BB THE AGGREGATE OF T OTAL INCOME FOR THE BLOCK PERIOD HAS TO BE COMPUTED. IF THE RETURN OF INCOME HAS NOT BEEN FILED THEN AS PER CLAUSE (C) OF SECTION 158BB THE LOSS SHOWN IN THE BOOKS OF ACCOUNT HAS TO BE ADDED TO SUCH AGGREGATE AND THE MAXIMUM N ON-TAXABLE LIMIT HAS TO BE REDUCED FROM THE AGGREGATE OF TOTAL INCOME SO ARRIVED. THOUGH WHILE COMPUTING THE AGGREGATE OF TOTAL INCOME FOR THE BLO CK PERIOD THE LOSS SHOWN IN THE BOOKS OF ACCOUNT ARE ADJUSTED AGAINST THE PROFITS OF ANY OTHER YEAR YET IN VIEW OF SECTION 158BB(C) SUCH LOSS HA S TO BE ADDED BACK AGAIN THUS NULLIFYING THE EFFECT OF LOSS. IN CASE OF FIRM THERE IS NO NON-TAXABLE PAGE 7 OF 7 EXEMPTION LIMIT. IN VIEW OF THE ABOVE SAID PROVISIO NS THE LOSS SHOWN BY THE ASSESSEE HAS TO BE IGNORED AND THE INCOME OF RS.64 090/- SHOWN FOR THE ASSESSMENT YEAR 1998-99 SHALL ONLY CONSTITUTE THE U NDISCLOSED INCOME OF THE ASSESSEE. 4.7 IN VIEW OF THE FOREGOING DISCUSSIONS THE O RDER OF LD CIT(A) IS REVERSED AND ACCORDINGLY WE DIRECT THE AO TO ADOPT THE AMOUNT OF RS.64 090/- AS THE UNDISCLOSED INCOME OF THE ASSESS EE. 5. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 15.3.2010 SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 15 TH MARCH 2010. COPY TO 1 M/S ARUNA ESTATES C/O SREE RAMA 4-4-5 3 RD STREET KOTHAGRAHARAM VIZIANAGARAM 535 001 2 THE DCIT CENTRAL CIRCLE-1 VISAKHAPATNAM 3 THE CIT-I HYDERABAD 4 THE CIT(A)-I HYDERABAD 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM