Search & Seizure u/s 132
It is not open to the AO to draw an inference on the basis of the projection in the seized document, particularly when the Assessee offered a plausible explanation for the document. The burden shifted to the Revenue to show, on the basis of some reliable and tangible material, how the rate at which the flats on the second and third floors of VT was higher than that indicated in the sales register or the sale deeds themselves
1. Assessee is engaged in the business of real estate development and was incorporated on 2nd July 1998 under the Companies Act, 1956
2. A search and seizure operation under Section 132 of the Act was carried out at the business premises of the Assessee and residential premises of its Directors on 8th May 2003
3. During the search and seizure operation, the Revenue seized various materials including inter alia the documents stored in the computer of one Mr. Sunil Awasthi, an employee of Vatika Group to which the Assessee belongs. These documents contained the working of the anticipated sale revenue on account of sale of space in the Vatika Triangle ('VT') and Vatika World ('VW') commercial complexes
4. Notice was issued to the Assessee by the Assessing Officer (‘AO’) on 23rd July 2004 under Section 158BC of the Act. When no return was filed by the Assessee pursuant thereto, notice under Section 142 (1) of the Act was issued on 3rd March and 4th April 2005
5. On 25 th April 2005 the Assessee filed a Nil return of income. A questionnaire was issued on 10th May 2005 to the Assessee by the AO asking it to explain the undisclosed receipts of sale of spaces/flats in VT
6. According to the Assessee, ‘the register gives complete details of commercial space to different persons and figures of sale shown in this register are as per regular books of accounts.” The list of persons to whom the sales were made along with their addresses was also part of the register
7. The AO passed an assessment order on 31st May 2005, the last date for completion of the block assessment under Section 158BE of the Act
8. A.O. determined undisclosed income of the Assessee at Rs. 31,01,09,834 which was then added to the returned income
9. There were two other additions made by the AO. One was Rs. 13,84,20,000 regarding alleged undisclosed receipt from sale of flats/space in VW. The other was the addition of Rs. 1,04,39,000 on the ground of alleged undisclosed income on account of accommodation entries.
10. Consequently the total addition in terms of the assessment order under Section 158BA/158BC read with Section 143 of the Act was Rs. 45,89,68,830
11. According to the CIT (A), the AO should have confined himself to the documents found during the search and seizure action instead of making an addition based on estimates. The CIT (A) examined each of eight instances of sale of flats in VT and upheld the addition only to the extent of Rs. 5,60,73,380. He deleted the addition to the extent of Rs. 25,40,35,954
12. Aggrieved by the above order of the CIT (A), the Revenue and the Assessee filed appeals before the ITAT. The Assessee questioned the order of the CIT (A) to the extent it sustained the addition of Rs. 5,60,73,380 as regards the sale of the second and third floor flats in VT and the two other additions made on account of sale of space in VW and accommodation entries
13. By the impugned common order dated 8th March 2103, the ITAT dismissed the Revenue’s appeal while partly allowing the Assessee’s appeal. With regard to issue of the alleged undisclosed receipt on sale of flats/space in VT, the ITAT deleted the additions made by the AO as sustained by the CIT (A) of Rs. 5,60,73,380. It however upheld the additions of Rs. 1,35,00,000/- and Rs. 49,64,904/- aggregating to Rs. 1,84,64,904/- out of Rs. 2,00,14,904/- sustained by the CIT (A) in respect of the alleged undisclosed receipt on sale of flats/space in VW
14. As already noticed both the Revenue and the Assessee filed appeals in High Court. As far as the Assessee’s appeal was concerned, High Court by its decision dated 6th April 2015 in ITA No. 2 of 2014 rejected it and upheld the addition of Rs. 1,35,00,000 and Rs. 49,64,904 by the ITAT
15. However, by an order dated 20 th May 2015 the only question that was framed for consideration by the ITAT was as under:
“Did the ITAT fall into error in holding that the addition of Rs. 5,60,73,380 was unsustainable in law in the circumstances of the case?"
16. Honb. High Court decided the issue in favour of the Assessee
Arguments by Revenue
It is submitted that the additions made by the AO to the extent of Rs. 31,01,09,834 on account of undisclosed receipt from sale of space/flats in Vatika Triangle was based on the searched materials. The search material was in the form of documents titled ‘cash flow/Vatika Triangle/backup’ stored in the computer of Mr. Sunil Awasthi who was an employee of the Vatika Group as well as the actual documents pertaining to sales made of the various flats in Vatika Triangle. This clearly indicated that the declared sale consideration was lower than the actual sale consideration. It was further submitted that the burden shifted on the Assessee to show that the other flats in VT were indeed sold only at the rate indicated in the sale register and not for a higher consideration
Arguments by Assessee
It was submitted that the ITAT was right in observing that CIT (A) erred in accepting only one part of document which was otherwise characterized as projections. Merely because the portion that was accepted indicated that flats on the second and third floor had already been sold, it did not mean that the flats were sold at the rates mentioned therein.....All these indicated that these were only projections and were not sale figures. It is submitted that an undated, unsigned and untested printout from the computer of an employee without linking the same with any actual transaction cannot constitute evidence detected as a result of the search which in turn would result in an addition of the undisclosed income under Section 158B (b) of the act.
Turning to the case on hand, the document recovered from the file in the computer of Mr. Awasthi, forms the basis of the addition made by the AO, which was further reduced by the CIT (A). This was in the form of a computer print out of three sheets which were unsigned and undated. The first sheet was titled ‘Cash-in-flow detail for the revenue’, the next was titled ‘Revenue details’ and the third was titled ‘Vatika Triangle, Guargaon.’ The notes to the documents are indicative of their being projections. Noting (i) states that “it is presumed that the building will be completed and fully let out in the month of November 2002.” Another note states "Further, the sale of the building will took place over a period of nine months." Admittedly, as on the date of the search the construction was still in progress. Flats up to the fourth floor had been sold. The view taken by the ITAT that mere fact that the print out states that the flats on second and third floor have been sold, does not necessarily mean that they were sold at the rates indicated therein is definitely a plausible view to take....Considering that the document was recovered from the computer of Mr. Sunil Awasthi, he ought to have been summoned to explain the rates of sale shown therein for the flats on different floors. In fact, the Assessee did make a request for his cross-examination. The other possibility was to examine the purchasers of the flats as they would have confirmed the price paid by them and how much of it was in cheque and what extent in cash. However, that too was not done.
In the present case, there was again no material on the basis of which the AO could have applied a standard rate of Rs 4,800 per sq ft for all the floors of VT. It was also not open to the AO to draw an inference on the basis of the projection in the document, particularly when the Assessee offered a plausible explanation for the document. The burden shifted to the Revenue to show, on the basis of some reliable and tangible material, how the rate at which the flats on the second and third floors of VT was higher than that indicated in the sales register or the sale deeds themselves.
In the circumstances, the Court is of the view that the ITAT was justified in coming to the conclusion that the addition of Rs. 5,60,73,380 made by the CIT (A) was not sustainable in law.
For the aforementioned reasons, the question framed by the Court is answered in the negative, i.e., in favour of the Assessee and against the Revenue.