1. This is an appeal against the order dt. 30th July, 1997, passed by the learned Dy. CIT(A), Special Range-2, Surat under s. 158BD r/w s.
158BC of the IT Act, 1961 and it relates to the block period comprising of asst. yrs. 1987-88 to 1997-98.
2. The only effective ground taken by the assessee is regarding the assessment of undisclosed income of Rs. 1,88,59,400 as 'on money'/premium charged by the assessee as against the undisclosed income of Rs. 30 lakhs disclosed by the assessee as net income earned in the project of Uday Towers in the return of undisclosed income filed in response to notice under s. 158BC. Thus, in the ground taken the assessee has challenged the addition of Rs. 1,58,59,400.
3. Briefly the facts are that the assessee is a partnership firm comprising of S/Shri Uday D. Tejani and Arvind Patel with equal share.
The assessee-firm undertook the supervision work of two cooperative societies viz., Jalaram Jyot Co-op. Housing Society and Ashish Nagar Cooperative Housing Society who respectively constructed Uday Deep and Uday Jyot multistoreyed apartments near Uma Bhuvan, Bhatar Road, Surat.
The assessee was also undertaking the booking of flats on behalf of the two societies, viz., Jalaram Jyot Cooperative Housing Society and Ashish Nagar Jyot Cooperative Housing Society. In the building constructed by Jalaram Jyoti Cooperative Housing Society, there were 40 flats each having a covered/built up area of 1,251 sq. ft. In the building constructed by Ashish Nagar Cooperative Housing Society, there were 20 flats having area of 1,251 sq. ft. and another 20 flats having area of 1,210 sq. ft. Both the projects are commonly known by Uday Nagar and total built up area of the two projects was 99,290 sq. ft.
4. There was a search and seizure operation under s. 132(1) against one Shri Madhavji D. Patel the architect and builder on 4th July, 1996.
Since Shri Madhavji D. Patel was architect of Uday Towers, the consequential search was also conducted under s. 132(1) of the Act against the assessee on 4th July, 1996. In the course of statement recorded by the authorised officer under s. 132(4), Shri Uday Tejani partner of the assessee-firm made a declaration of undisclosed income of Rs. 30 lakhs for the block period. After the search in response to notice under s. 158BC issued on 13th January, 1997, the assessee filed a return showing undisclosed income of Rs. 30 lakhs as per the statement given under s. 132(4).
5. During the course of assessment proceedings the AO issued a letter dt. 11th July, 1997 to the assessee intimating that as per "B-2" p. 16 seized during the search in the case of Shri Madhavji D. Patel, the details regarding the sale of flat No. 704 and 804 of Uday Towers are given. In the above seized paper it was mentioned that these flats were purchased by one Shri Uttamchand Jain and the rate of Rs. 455 per sq.
ft. is written on this page. The AO, therefore, came to the conclusion that the assessee has charged 'on money'/premium of Rs. 190 per sq. ft.
as documents in relation to the sale of above two flats were made at the rate of Rs. 265 per sq. ft. Accordingly the AO proposed an addition of Rs. 1,88,59,400 for the entire project of Uday Towers comprising of built-up area of 99,290 sq. ft. In response to the above letter the assessee explained that it used to charge the extra sum from the members of the society on account of extra work done in flats and the extra sum received for extra work and extra expenditure incurred for that work was not recorded in the regular books of accounts and the assessee in fact had made a declaration of Rs. 30 lakhs on account of unrecorded profit earned in relation to the extra work done in the project of Uday Towers whose construction was supervised by the assessee on behalf of the two cooperative societies. It was also not found from the premises of the assessee or its partner, no statutory presumption can be drawn against the assessee. It was further submitted to the AO that these flats were sold through Shri Madhavji D. Patel and it was decided that Shri Madhavji D. Patel would carry out the extra work for both these parties and as such the instalment of Rs. 20,000 shall be paid by the parties to Shri Madhavji D. Patel which is evident from the noting in the paper seized from Shri Madhavji D. Patel in which it was mentioned that Havala of Shri Madhavji D. Patel would be completed through the instalment of Rs. 20,000. The AO however rejected the submissions made on behalf of the assessee and relying on the decision of the Supreme Court in the case of CST vs. Esufali Abdulali (1973) 90 ITR 271 (SC) held that it was the assessee who was charging 'on money'/premium of Rs. 190 per sq. ft. from the purchasers of flats in the project of Uday Towers and since the documents were executed indicating the sale rate of Rs. 265 per sq. ft., the AO held that the assessee must have charged 'on money'/premium amounting to Rs. 1,88,59,400 for the entire project of Uday Towers comprising of the built-up area of 99,290 sq. ft. and after giving credit of Rs. 30 lakhs declared in the return filed under s. 158BC, the AO made an addition of Rs. 1,88,59,400. The above addition has been challenged by the assessee in appeal before us.
6. Shri Rasesh Shah, the learned representative of the assessee, submitted that the facts broadly mentioned by the AO in the assessment order are not disputed. He however submitted that Shri Uday Tejani in his statement recorded under s. 131 on 23rd July, 1997, in reply to question No. 3 stated that the seized paper on the basis of which addition had been made relates to the flats 704 and 804 in Uday Towers which were sold through Shri Madhavji D. Patel and the amount of Rs. 455 mentioned therein is including the extra work to be carried out by Shri Madhavji D. Patel. It was submitted that Shri Uttamchand Jain has stated that the assessee-firm M/s. Abhishek Corporation had not carried out any extra work in these two flats. It was submitted that the AO also recorded the statement of Shri Madhavji D. Patel on 24th July, 1997 under s. 131 in his block assessment proceedings wherein he admitted that the disputed paper pertained to Uday Towers for which he was architect and he also admitted that Shri Uttamchand Jain made booking through him. It was further submitted that the alleged premium of Rs. 190 per sq. ft. was not in fact a premium but was taken only for the extra work which S/Shri Uttamchand Jain and Rameshbhai wanted Shri Madhavji D. Patel to do for them in the flats booked by them in Uday Towers. It was submitted that the reasoning of the AO that the extra work cannot be of Rs. 190 per sq. ft. is without any basis as sometimes the cost of extra work can even be greater than the initial cost of the flats. It was submitted that in the alleged paper it is clearly mentioned that Shri Madhavji D. Patel would receive the amount from the two flat holders and the statement of Shri Madhavji D. Patel that he received only Rs. 2 lakhs and the balance was given directly to Shri Udaybhai and he kept the details of the payments made by Shri Uttamchand Jain on his instructions cannot be relied upon to make a huge addition of Rs. 1,58,59,400. It was further submitted that the alleged paper on the basis of which this huge addition has been made was found from the possession of Shri Madhavji D. Patel and it also contained the details of amount received by Shri Madhavji D. Patel from Shri Uttamchand Jain. It was submitted that not much reliance can be placed on the statement of Shri Madhavji D. Patel because he has given factually wrong information in the statement recorded under s. 132(4) by the authorised officer in the course of his search and the Department has launched prosecution against him for giving false statement. It was submitted that the AO has wrongly mentioned in the last sentence of para 5 of the assessment order that a statement of Shri Uttamchand Jain was recorded under s. 131 on 23rd July, 1997 where he retracted that the amount of Rs. 455 per sq. ft. was including extra work to be carried out by Shri Madhavji D. Patel as the same details were mentioned in the seized paper also. It was submitted that the above observations of the AO are factually incorrect as Shri Uttam Chand Jain was never summoned and he has not given any statement to the AO on his own motion or on summons issued by the AO. In this connection the learned representative of the assessee submitted that Shri Uttam Chand Jain has filed an affidavit denying that any statement from him was taken by the AO under s. 131 and he also denied having paid any 'on money'/premium in respect of the flat purchased by him. It was further submitted that the alleged paper was not found from the possession of the assessee and so the presumption under s. 132(4A) of the IT Act, 1961 or presumption under the provisions of Evidence Act cannot be drawn against the assessee. He accordingly submitted that the entire addition made by the AO is required to be deleted. Reliance was placed on the decision of the Bombay High Court in the case of Addl. CIT vs.
Miss Lata Mangeshkar (1974) 97 ITR 696 (Bom) and the decision of the Tribunal in the case of Asstt. CIT vs. Prabhat Oil Mills (1995) 52 TTJ (Ahd) 533 and the decision of the Tribunal in the case of Amar Natverlal Shah vs. Asstt. CIT (1997) 57 TTJ (Ahd) 454 : (1997) 60 ITD 560 (Ahd). It was further submitted that the reliance by the AO on the case of Esufali Abdulali (supra) is misplaced because that was a judgment under the Sales-tax Act where as a result of search omission of sales in the regular books were found as a result of discovery of a note-book which contained turn over of 19 days, which were not included in the regular books whereas in the case of the assessee before us it is alleged that the sales have been recorded short. Thus, the case of the assessee is even as per the AO understatement of receipts and not omission of receipts.
7. Alternatively it was pleaded that even if it is assumed that the assessee was charging 'on money'/premium the receipts cannot be treated as the income of the assessee for the block period but only net profit rate declared by the assessee can be applied on the alleged unrecorded receipts in view of the decision of the Third Member of the Tribunal in the case of ITO vs. Gurubachan Singh J. Juneja (1996) 54 TTJ (Ahd) 1 (TM) : (1995) 216 ITR 99 (AT) (Ahd)(TM). It was submitted that the assessee had received supervision charges at the rate of 9 per cent and 11 per cent of the cost of construction, respectively, from Ashish Nagar Cooperative Housing Society and Jalaram Jayot Cooperative Housing Society. It was pleaded that the assessee received supervision charges of Rs. 15,42,993 in the year relevant to asst. yrs. 1995-96 and 1996-97 from these two societies and has declared net profit of Rs. 1,01,346 on these receipts. It was submitted that the assessee's net profit before depreciation and salary to partners comes to Rs. 3,43,672. Accordingly, it was submitted that the net profit rate will come to 1.31 per cent because the net profit of Rs. 3,43,672 is in relation to total receipts of Rs. 2.63 crores (99,260 sq. ft. x Rs. 265 per sq. ft.). Accordingly, it was submitted that the unrecorded profit on the alleged unrecorded premium of Rs. 1,88,59,400 at the net profit rate of 1.31 per cent would be covered by the undisclosed income of Rs. 30 lakhs declared by the assessee in the return filed in response to notice under s. 158BC and as such the entire addition of Rs. 1,58,59,400 is required to be deleted.
8. Shri Ramesh Chander, the learned Departmental Representative supported the order of the AO and submitted that in view of the decision of the Supreme Court in the case of Esufali Abdulali (supra) the AO was perfectly justified in holding that the assessee was receiving 'on money'/premium in respect of the flats sold by him either directly or through Shri Madhavji D. Patel and since the premium of Rs. 190 per sq. ft. was apparent from the seized paper found from the premises of Shri Madhavji D. Patel who was architect of Uday Towers constructed by the assessee and who admitted having received 'on money'/ premium of Rs. 190 per sq. ft. on behalf of the assessee, the AO was perfectly justified in making the disputed addition of Rs. 1,58,59,400 and thereby determining the undisclosed income for the block period at Rs. 1,88,59,400.
As regards the alternative submissions of the learned representative of the assessee relying on the decision of the Tribunal in the case of Gurubachan Singh J. Juneja (supra), it was submitted that the said decision has not been accepted by the Department.
9. We have considered the rival submissions and have also gone through the order passed by the AO. In view of the factual finding in the form of a paper during the course of search of Shri Madhavji D. Patel, which clearly indicated that the assessee was receiving premium/'on money' at the rate of Rs. 190 per sq. ft. in the booking of flats in Uday Towers, which indicated the price charged by the assessee at Rs. 455 per sq.
ft. whereas the documents were executed indicating the rate of Rs. 265 per sq. ft., we are of the opinion that the AO was justified in rejecting the books of accounts of the assessee for the assessment years included in the block period.
Under s. 114(d) of the Indian Evidence Act, 1872, there is a presumption that a thing or state of thing which has been shown to be in existence within a period shorter than that within which such thing or state of thing usually ceases to exist, is still in existence. if a thing or state of thing is shown to exist, an inference of its continuity within a reasonably proximate time goes forward and backward and may sometimes be drawn.
In the instant case, it is shown that the assessee was charging 'on money'/ premium in respect of booking of flats in Uday Towers and as such we are of the opinion that the assessee in fact did charge 'on money'/premium in relation to booking of flats in Uday Towers. However, the entire receipts on account of 'on money'/premium charged by the assessee on booking of flats cannot be the undisclosed income of the assessee for the block period because the AO had not proved by bringing any material on record that the assessee did make any investment to make the alleged unaccounted receipts/sales of Rs. 1,58,59,400. In this view of the matter only net profit rate can be applied on unaccounted sales/receipts for the purpose of making the addition as per the ratio of the decision of the Third Member in the case of Gurubachan J. Juneja (supra) which is based upon the decision of the Calcutta High Court in the case of CIT vs. S. M. Omer (1993) 201 ITR 608 (Cal). Since net profit rate in the asst. yrs. 1995-96 and 1996-97 included in the block assessment comes only to 1.31 per cent as per the figures given by the assessee and recorded by us in para 6 which has not been disputed by the Revenue at the time of hearing, the addition on account of undisclosed income is much less than the undisclosed income of Rs. 30 lakhs offered by the assessee himself in the return filed in response to notice under s. 158BC, we are of the opinion that the AO was not justified in making further addition of Rs. 1,58,59,400 which is directed to be deleted.