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This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Vijayawada vide Appeal No.140/CIT(A)/VJA/2011-12 dated 27.03.2013 for the Assessment Year (A.Y.)2005-06.
2. The assessee is a partnership firm doing real estate business, filed its return of income for the A.Y. 2005-06 on 01.11.2005 declaring loss of Rs.2,09,820/-. A search and seizure operation was conducted in the case of Shubhadarsi group of companies on 07.11.2006. During the course of search, it was found that the assessee firm entered into a transaction with M/s Jayadarshini Housing (P) Ltd. for a sum of Rs.1,08,34,000/-. The managing partner of the firm Shri P.Sankara Rao in his statement recorded on 07.11.2006 explained that it represents sale transaction entered into with M/s Jayadarshini Housing Pvt. Ltd , in connection with the sale of 1930 sq.yards of vacant land located at Kanuru, Vijayawada and the agricultural land. Search operations were also simultaneously conducted in the case of M/s Jayadarshini Housing Pvt. Ltd. and its group companies. During the course of search, a statement was recorded from Shri G.Saibabu,Managing Director of Jayadarshini group of companies on 09.11.2006. Shri Saibabu also admitted that the company has purchased 20 acres of agricultural land at Medchal along with 1930 sq.yards of site at Kanur village, Vijayawada and paid Rs. 3.00 crores to Shri P.Sankara Rao, the managing partner of the assessee firm. Shri G.Saibabu further stated that out of the sum of Rs.3.00 crores paid to Shri P.Sankara Rao, the sale consideration shown in the registered sale deeds was Rs.1.22 crores and the balance amount of Rs.1.78 crores was on-money paid in cash to Shri P.Sankara Rao towards purchase of agricultural land as well as the vacant site of 1930 sq.yds.. Shri P.Sankara Rao, Managing partner of the assessee firm also agreed that he has received Rs.1.78 crores in cash as additional consideration and also accepted to admit the same as additional income for the relevant assessment year. The statement was recorded from Shri
P.Sankara Rao on 21.12.2006 and the assessee agreed the same as additional income. In this case, 20 acres of agricultural land located at Medchal was sold by Shri P.Sankara Rao @Rs.15 lakhs per acre and 1930 sq.yds of vacant land located at Kanur, Vijayawada was also sold for a sum Rs.1.07 crores by way of two different sale deeds dated 07.03.2007. The assessee recorded only the registered sale consideration both for purchase and sale of the land in its books of accounts. Subsequently, the assessee retracted from the admission of additional income and the acceptance of on-money of Rs.1.78 crores was admitted in the statement recorded on his own on 21.12.2006. The AO completed the assessment holding that the assessee had received on-money and apportioned the on-money component of Rs.1,56,11,475/- towards sale of vacant site at Kanur in the hands of Shubhadarsi Estates and the sum of Rs.21,88,525/- in the hands of Peddu Sankaraa Rao towards sale of agricultural land.
3. On appeal, the Ld.CIT(A) enhanced the on-money component in the hands of the assessee firm to Rs.1,61,71,166/- and reduced the on-money component in the hands of Shri P.Sankara Rao to Rs.16,28,834/- vide Ld.CIT(A) order No. 95/TR/CIT(A)/VJA/09-10 dated 24/12/2009. On appeal, Hon’ble ITAT in its order in I.T.A. 179/Viz/2010 dated 28.06.2011 apportioned the on-money towards sale of urban site at Kanur village in the hands of the assessee firm at Rs.27.15 lakhs and in the hands of Shri P.Sankara Rao, Managing partner towards sale of agricultural land at 1.53 crores. Thus, the total income assessed in the hands of Shubhadarsi Estates for the A.Y. 2005-06 after giving effect to the order of the ITAT was reduced to Rs.40,05,522/- as against the assessed income of Rs.1,69,05,785/-.
4. On receipt of the Ld.CIT(A) order, the AO completed the penalty proceedings and imposed penalty of Rs. 61,52,212/- on concealed income of Rs.1,61,71,166/- which was enhanced by the Ld.CIT(A).
5. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) cancelled the penalty stating that no material was found during the course of search and seizure operations regarding receipt of additional consideration and there is no scientific method