THE issue before the Bench is - Whether when the Search conducted by the Revenue leads to papers relating to sale and purchase of land outside the books and the same is admitted by the Managing Director in his statement, any addition with respect to unexplained investments is legally sustainable. And the verdict goes against the assessee.
Facts of the case
A) The assessee-company is engaged in real estate and construction business. During the year, company purchased land and sold plots after undertaking development works. There were search
and seizure operations under section 132. Assessee claimed deduction under section 80IB on the residential complex constructed and sold. Assessing Officer asked for details. Assessee did not furnish complete details. Therefore, A.O. called for sale deeds and noticed that all the flats sold were above 1500 sq.ft. and exceeded the limits prescribed under the Act. Therefore, he denied the deduction.In appeal, CIT(A) held that out of 65 flats only 5 were above 1500 sq.ft. area, therefore, the Assessing Officer was not justified to deny the benefit of deduction u/s 80-IB for the entire project completed for the assessment year under consideration.
B) During the course of search, it was found that the company had purchased a vacant site and agricultural land from one P. The vacant site was purchased for a registered price of Rs.l.07 crores in cash and a consideration of Rs.15 lakhs was paid for the agricultural land. However, during recording of statement of Managing Director of the company, it was stated that the company has paid an amount of Rs.3 crores in cash for the two properties. It was further explained that there was no exact bifurcation and the value recorded in books was Rs.1.22 crores for both the properties. It was stated that the difference amount of Rs.1.78 crores was also paid in cash by the company and it was admitted as undisclosed income for the FY 2004-05. However in the return of Income filed u/s 153A, no amount as admitted was shown as income. Subsequently, enquiry was made with the other party and on verification of records of the company it was found that no payment over and above the recorded amount in books have been paid and hence no income was shown in the return filed. AO was of the view that the admission of payment made of Rs.1.78 crores in cash in statement recorded u/s 132(4) on oath was in itself evidence as per provisions of the Act. The filing of confirmation from P who has also admitted to have received the amount of cash of Rs. 1.78 crores was nothing but a self serving document. The amount paid in cash for both the properties over and above the registered value was treated as unexplained investment and added to the income.
In appeal, CIT(A) was of the view that the Managing Director of the assessee company had agreed to have paid Rs.3 crores for the purchase of above two properties and also in view of the fact that other party also agreed to have received an amount of Rs.3 crores as sale consideration. Thus, CIT(A) confirmed addition.
Assessee submitted that there was no evidence whatsoever for making the addition, there is no incriminating material in the search and an admission by Managing Director cannot be taken as basis. It was submitted that assessee- Managing Director had filed an affidavit later withdrawing the statement.
Having heard the parties, the tribunal held that,
A) ++ Assessee has not furnished any details of 'Built-up' area before A.O. The A.O. has to obtain the sale deeds to ascertain the built-up area. The CIT(A) without referring the issue on remand for verification of built up area, simply allowed the deduction, without verification of facts. Not only that he allowed proportionate deduction at sixty/sixty five flats in both the years, without restricting to the actual profit on sale of flats;
++ the assessee has shown 'contract receipts' only in the P & L account. Development of project and sale of apartments were not reflected as such. The plans placed on record indicate that the plans are approved in the name of Alluri Gangaraju owner thereon. So the development agreements and sale agreements require verification to determine that assessee has developed the 'project'. Another issue required to be examined is the exclusion of 'common area' and 'car park' area from the builtup area. As per the plan on record, total common area is 27.39% including car park area. However, assessee excluded both independently. Assessee has shown sixty five car parking areas at 306 sq. feet each in the table furnished (at page 19, 20 of paper book) to the CIT(A). The entire car park area, if totaled comes to more than the stilt area approved in the plan (i.e., 121.03 sq. meters). Therefore, we are of the opinion that the CIT(A) erred in allowing the proportionate allowance without subjecting the details furnished to verification. It is also noticed that assessee claimed deduction of Rs.1,88,00,917/- in A.Y. 2005-06 whereas, profit as per P & L account was only Rs.1,15,99,172/-. Likewise, in A.Y. 2006-07 assessee claimed deduction of Rs.45,64,600/- on a profit of Rs.3,35,30,385/-. The actual profit working of the project, excluding other real estate transactions is not on record as copy of 3CB reports were not placed in paper books. This also requires verification. Therefore, we set aside the orders of authorities on the issue and restore the issue of claim of 80IB afresh to the file of A.O. to examine the eligibility and determine the amount of profit, if assessee is found eligible for deduction under section 80IB. Assessing Officer is directed to examine above aspects by giving due opportunity to the assessee and decide afresh after ascertaining the facts and according to law. The grounds of Revenue in both appeals are allowed for statistical purposes;
B) ++ the assessee's Managing Director was confronted with the statement of Mr. P. Shankara Rao and the assessee has admitted to have paid Rs. 1.78 crores vide statement dated 09.11.2006 whereas, search was conducted on 07.11.2006. Not only that subsequently, also further statements were recorded. Therefore, it cannot be said that assessee was in the state of utter confusion or not in a proper state of mind while making the statement to the department. Not only that by admitting the amounts in the course of search and not retracting immediately, assessee also successfully prevented the revenue authorities in further making the enquiries in this regard. Assessee by his conduct has forced the Revenue to stop its enquiries as assessee has admitted these amounts. It may be true that there is no incriminating material but admission by the assessee is to be accepted as a bonafide admission. The A.P. High Court in the case of Kermax Micro Systems India Ltd. vs. DCIT 362 ITR 13 considered similar situation of retraction and opined that there must be a distinction between admission and the evidence collected during the course of survey. This is a voluntary act of the assessee and if the assessee accepts the payment, there is no point or scope to collect further evidence or making any enquiry. Since assessee admitted in the course of search which was also confronted to the seller, It is to be accepted that assessee genuinely admitted payment of on money and subsequent retraction is only to avoid the consequence of his admission of payment of on-money;
++ in this regard, the ITAT in ITA.No. 166 to 169, 179, 180 and 44/Hyd/2010 in the case of Mr. P. Shankar Rao (seller) has examined the issue and has adjudicated the same as under:
"33. With regard to the receipt of on money is concerned, we find that the search was conducted upon the residential premises of the assessee along with the business premises of M/s. Subhadarshi Chit Funds (P) Ltd., and Subhadarshi Estates on 07.11.2006 and during the course of search various incriminating materials were found suggesting the sale and purchase of land or properties outside the books of accounts.
34. With regard to the impugned properties i.e. 20 acre agricultural land at Ravalakool village and the land measuring 1930 sq. yards at Vijayawada, the buyer of the property Shri G. Sai Babu, Managing Director of Jaidarshini Housing Pvt. Ltd., was examined and in his statement recorded on 9.11.2006, much after the date of search has admitted categorically that he had paid Rs.1.78 crores to the assessee Shri P. Sankara Rao over and above the sale consideration recorded in the sale document. This statement of buyer was confronted to the assessee and in his statement recorded on 21.12.2006 the assessee has admitted the receipt of Rs.1.78 crores in excess of the registered value of the transactions of both the sales. The relevant question No.6 and its answer is extracted hereunder for the sake of reference:
"Q. It is seen from the statement of Sri Sai Babu, the Managing Director of JDHPL, he was paid around Rs.1.78 crores in excess of the registered value of the above said transactions towards sale consideration. Do you agree and have you recovered this amount?
Yes, I do confirm that I have received around Rs.1.78 crores in excess of the registered value of the transactions for both the sales. This was received in cash.
35. Since the statement of the assessee was recorded on 21.12.2006, much after the search i.e. on 07.11.2006, it cannot be said that the assessee was under the state of utter confusion or not in a proper state of mind while making the statement on account of pressure from the Department. The statement of the assessee could have been retracted even at the time of filing the return of income. The return of income was examined by the Assessing Officer and a questionnaire was issued on 28.1.2008 in which the Assessing Officer has raised a specific query as to why the additional income of Rs.1.78 crores was not offered to tax. The Assessing Officer has given time to the assessee for furnishing the details up to 18.2.2008 but despite of this notice the assessee did not come forward to retract from his earlier statement admitting the receipt of on money. Thereafter the Assessing Officer further issued a notice on 24.9.2008 asking the assessee again as to why the capital gain should not be worked out on the total consideration including the Rs.1.78 crores on money received by the assessee for the year under consideration. This notice was to be replied by 6.10.2010, but the assessee again did not come forward either to reply to that notice or to retract from the earlier statement. The assessment was to be completed before 31st December, 2008 and the assessee has filed an affidavit retracting from the earlier statement on 8.12.2008 stating therein that he has accepted the additional amount of Rs.1.78 crores because of utter confusion in understanding. Nothing has been placed on record to justify or to explain as to why the assessee has not retracted from his earlier statement despite a query and the notices issued by the Assessing Officer, if his statement was recorded in utter confusion of mind. The explanation put forth by the assessee does not appear to be reasonable. Had it been truth therein the assessee would have retracted from his earlier statement at the earliest opportunity available to it.
36. We do not rule out the possibility that sometimes during the course of search the assessee may not be in a proper state of mind under various pressure and he admits income under different heads though he has reasonable explanation for those incomes. But in such circumstances the assessee should come forward and retract from the earlier statement recorded during the course of search at the earliest opportunity available to it. He should not wait for the start of assessment proceedings. As and when the search is over, the assessee has every right to consult the professionals on the statement made by it during the course of search and if he is advised so, he may retract from the statement recorded during the course of search and furnish valid explanation either to the search party or to the Assessing Officer or to the Commissioner having jurisdiction over the concerned Assessing Officer. In such circumstances, the contention of the assessee can be expected that his statement might have been recorded under the influence of coercion or under utter confusion. But if the assessee tried to retract from his earlier statement after a substantial period of time, such type of retraction is far from truth and cannot be accepted.
37. In the instant case, the statement of the assessee was not even recorded during the course of search. The search was conducted on 7.11.2006 and his statement was recorded on 21.12.2006. Therefore, it cannot be said that the statement was recorded under utter confusion as he has sufficient time to consult the professionals. Moreover the assessee has filed the affidavit retracting from his earlier statement on 8.12.2008 i.e. almost after 2 years. Therefore, the said retraction cannot be called to be valid retraction and has no evidentiary value. We, therefore, do not find any infirmity in the order of the CIT (A) who has rightly treated the receipt of on money in the hands of the assessee as well as Subhadarshi Estates, the other assessee, on sale of aforesaid two properties i.e. 20 acres of agricultural land at Ravalakoli village and the land measuring 1930 sq. yards at Vijayawada.
38. Either in the statement or during the course of search nothing has been found to show that how much money was received on account of sale of agricultural land. The Assessing Officer and the revenue authorities allocated the entire money on both sale transactions on different basis and the same is also under dispute before us. The issue of allocation of on money is also under dispute in another assessee i.e. Subhadarshi Estates also. We therefore, adjudicate this issue in the appeal of Subhdarshi Estates i.e. ITA No.179 of 2010".
++ following the Coordinate Bench decision in the case of the seller, we confirm the addition in the hands of the buyer i.e., assessee-company. Therefore, action of the A.O. and CIT(A) are accordingly confirmed and appeal of the assessee is dismissed.
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