Ita/222/2012 Of M/S. Real Forts & Resorts Pvt. Ltd v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 31ST DAY OF OCTOBER 2017/9TH KARTHIKA, 1939 ITA.No.222 of 2012 ----------------------- AGAINST THE ORDER IN IT(SS)A. No.217/2005 of I.T.A.TRIBUNAL,COCHINBENCH DATED 23-03-2012 ---------- APPELLANT/RESPONDENT/ASSESSEE: ------------------------------------------ M/S. REAL FORTS & RESORTS PVT. LTD. CITY CENTRE, FORT ROAD, KANNUR, REPRESENTED BY ITS MANAGING DIRECTOR, SRI.ABDULLA ZUBAIR. BY ADV. SRI.S.ARUN RAJ RESPONDENT/APPELLANT/REVENUE: ----------------------------------------- COMMISSIONER OF INCOME TAX CALICUT. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAXSri.PKR MENON (SR.), SC THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 31-10-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ANTONY DOMINIC, & DAMA SESHADRI NAIDU, JJ. ------------------------------------------------ I.T.A. No.222 of 2012 ------------------------------------------------ Dated this the 31[st] day of October, 2017 JUDGMENT Antony Dominic, J. 1. aThis appeal is filed by the assessee against the order passed by the Income Tax Appellate Tribunal in IT(SS)A. No.217/Coch/2005 concerning the block period from01.04.1966 to 29.01.2003. 2. The brief facts of the case are that, the assessee company is engaged in real estate development. TheDepartment carried out search and seizure operation of theassessee on 29.01.2003. Consequent to the search, blockassessment under Section 158BB of the Income Tax Act wascompleted by making various additions. The assesseechallenged the additions before the Commissioner of IncomeTax (Appeals). The appellate authority passed orders I.T.A. No.222 of 2012 -2- granting partial relief. Aggrieved by the relief granted, theRevenue filed IT(SS)A.217/05 before the Tribunal and theadditions which were confirmed by the first appellateauthority were impugned by the assessee in Cross ObjectionNo.14/2006. The appeal and Cross Objection were disposedof by the Tribunal by its order dated 23.03.2012. It is thisorder which is impugned by the assessee with the following questions of law framed for the consideration of this Court: "1.Whether the Tribunal is correct, in law andfact of the case, in remanding the issue,relating to the profit on sale of pent house tothe tune of Rs.21,00,000/-, back to theassessing officer for fresh consideration evenafter the Tribunal taking note of the fact thatthe CIT (A) have deleted the addition, interalia, on the ground that there was nomaterial found in the course of search forthis addition and also after getting convincedthat the assessing officer is also silent aboutavailability of seized material. Is not thefinding perverse and illegal?fact of the case, in remanding the issue,relating to the profit on sale of pent house tothe tune of Rs.21,00,000/-, back to theassessing officer for fresh consideration evenafter the Tribunal taking note of the fact thatthe CIT (A) have deleted the addition, interalia, on the ground that there was nomaterial found in the course of search forthis addition and also after getting convincedthat the assessing officer is also silent aboutavailability of seized material. Is not thefinding perverse and illegal? 2.Whether the Tribunal is correct, in law andfacts of the case, in remanding the issue,relating to alleged undisclosed profit ofRs.50,81,874/- on sale of land and building,back to the assessing officer for freshfacts of the case, in remanding the issue,relating to alleged undisclosed profit ofRs.50,81,874/- on sale of land and building,back to the assessing officer for fresh I.T.A. No.222 of 2012 2.Whether the Tribunal is correct, in law andfacts of the case, in remanding the issue,relating to alleged undisclosed profit ofRs.50,81,874/- on sale of land and building,back to the assessing officer for freshfacts of the case, in remanding the issue,relating to alleged undisclosed profit ofRs.50,81,874/- on sale of land and building,back to the assessing officer for fresh I.T.A. No.222 of 2012 consideration even after the Tribunal takingnote of the fact that the CIT(A) have deletedthe addition, inter alia, on the ground thatthere was no material found in the course ofsearch for this addition and also after gettingconvinced that the assessing officer is alsosilent about availability of seized material. Isnot the finding perverse and illegal? 3.Whether the Tribunal is correct, in law andfacts of the case, in restoring/confirming theaddition made by the assessing officer to thetune of Rs.50 lakhs as undisclosed saleproceeds of City Centre space in the case ofSri.Jamaluddin and Sri.Muneer?facts of the case, in restoring/confirming theaddition made by the assessing officer to thetune of Rs.50 lakhs as undisclosed saleproceeds of City Centre space in the case ofSri.Jamaluddin and Sri.Muneer? 4.Whether the Tribunal is right in law and factsof the case, in holding that the statementtaken on oath u/s 131 from Sri.Muneer atthe time of survey proceeding in firm M/sMalabar Tower and Superior Decor prior tothe search has got evidentiary value andaddition can be made in the hands ofassessee based on the said statement ofSri.Muneer?of the case, in holding that the statementtaken on oath u/s 131 from Sri.Muneer atthe time of survey proceeding in firm M/sMalabar Tower and Superior Decor prior tothe search has got evidentiary value andaddition can be made in the hands ofassessee based on the said statement ofSri.Muneer? 5.Whether the Tribunal is right in law and factsof the case in holding that the decision ofthe Kerala High Court in the case of PaulMathew & Sons (263 ITR 101) is notapplicable to the facts of the case?of the case in holding that the decision ofthe Kerala High Court in the case of PaulMathew & Sons (263 ITR 101) is notapplicable to the facts of the case? 6.Whether the Tribunal is right in law and factsof the case, in restoring/confirming theaddition of Rs.50,00,000/- made by theof the case, in restoring/confirming theaddition of Rs.50,00,000/- made by the assessing officer on the basis of a statementof Mr. Muneer taken under Section 131 ofthe Income Tax Act on survey proceedingsprior to the search, especially when therewas no material found in the course ofsearch, as held by the CIT(A) and therebeing no adjudication of the same by theTribunal. Is not the said finding perverse andillegal?” 3. We heard the learned counsel appearing for theassessee and the learned Senior Counsel appearing for theRevenue. 4. Among the three issues that were raised before this Court, the first is with respect to the deletion of `21 lakhspertaining to the profit on sale of the Pent House. In theassessment order, `21 lakhs was brought to tax asundisclosed income in the hands of the assessee. The firstappellate authority ordered that the addition be deletedbased on its finding that the Pent House was not completeand relied on a non-completion certificate produced beforeit. The CIT (Appeals) also found that there was no seizedmaterial supporting the addition. By the order impugned, I.T.A. No.222 of 2012 the Tribunal set aside the order of the appellate authority and directed the Assessing Officer to examine the issueafresh in the light of seized materials and pass orders inaccordance with law. 5. According to the learned counsel for the assessee, Court, the first is with respect to the deletion of `21 lakhspertaining to the profit on sale of the Pent House. In theassessment order, `21 lakhs was brought to tax asundisclosed income in the hands of the assessee. The firstappellate authority ordered that the addition be deletedbased on its finding that the Pent House was not completeand relied on a non-completion certificate produced beforeit. The CIT (Appeals) also found that there was no seizedmaterial supporting the addition. By the order impugned, I.T.A. No.222 of 2012 the Tribunal set aside the order of the appellate authority and directed the Assessing Officer to examine the issueafresh in the light of seized materials and pass orders inaccordance with law. 5. According to the learned counsel for the assessee, the first appellate authority having deleted the addition forvalid reasons, the Tribunal should not have interfered withsuch order. However, a reading of the order passed by theTribunal shows that, it had found that the assessment orderwas silent as to whether the addition was towardssuppressed cost of construction or towards the suppressedsale receipts. The Tribunal also took note of the fact thatfresh evidence was considered by the first appellateauthority without confronting the assessing authority withthe same. These reasons assigned by the Tribunal areperfectly legal and, therefore, the Tribunal cannot be faultedfor having remitted the issue for the consideration of theAssessing Officer. I.T.A. No.222 of 2012 -6- 6. The second finding of the Tribunal which wasimpugned by the assessee was with respect to the additionof undisclosed profit of `50,81,874/- on sale of land andconstructed area. This issue also was remitted by theTribunal and the reasons thereof are stated in paragraph 8.2thus: “...... In our view, the AO has tried to quantify thesaid difference and treated the same as theundisclosed income of the assessee. However, hehas failed to highlight/consider the terms ofagreement between the assessee company andthe land owners in this regard. If according to theagreement, the assessee company is entitled toenjoy the excess price realised on sale of land andfurther if it has failed to account the same as itsincome, then the said difference, in our view, canbe treated as undisclosed income in the hands ofthe assessee company. We may mention herethat all depends upon the terms of agreementbetween the assessee company and land owners,which requires examination, as the same was notbrought on record by the AO. In view of theforegoing discussions, we are of the view that thisissue also requires re-examination in the light ofdiscussions made above. Accordingly, we setaside the order of Ld. CIT(A) on this issue andrestore the same to the file of the AO with adirection to examine the issue afresh by makingproper reference to the seized materials andsaid difference and treated the same as theundisclosed income of the assessee. However, hehas failed to highlight/consider the terms ofagreement between the assessee company andthe land owners in this regard. If according to theagreement, the assessee company is entitled toenjoy the excess price realised on sale of land andfurther if it has failed to account the same as itsincome, then the said difference, in our view, canbe treated as undisclosed income in the hands ofthe assessee company. We may mention herethat all depends upon the terms of agreementbetween the assessee company and land owners,which requires examination, as the same was notbrought on record by the AO. In view of theforegoing discussions, we are of the view that thisissue also requires re-examination in the light ofdiscussions made above. Accordingly, we setaside the order of Ld. CIT(A) on this issue andrestore the same to the file of the AO with adirection to examine the issue afresh by makingproper reference to the seized materials and I.T.A. No.222 of 2012 decide the same in accordance with law.” 7. These reasons assigned by the Tribunal are alsovalid and therefore, we are not persuaded to interfere withthis finding also. 8. The third issue canvassed before us relates to theaddition of `50 lakhs relating to the unaccounted receipt onsale of commercial space to M/s Malabar Tower and SuperiorDecor. This addition was set aside by the first appellateauthority and was restored by the Tribunal. According to thelearned counsel for the assessee, a reading of theAssessment Order and the order passed by the firstappellate authority would show that this addition was madebased on materials recovered at the time of the surveyconducted long before the search and seizure operation.According to the learned counsel, a reading of Section158BB of the Income Tax Act, by the Circular No.8 of 2002and the judgments of the Madhya Pradesh High Court inC.I.T. v. K.C.Nirmal Kumar (M.P.) [263 ITR 77] and the I.T.A. No.222 of 2012 -8- judgment of the Madras High Court in CIT v. S.Ajit Kumar (Mad) [2008] 300 ITR 152 (Mad), would show thatmaterials recovered in the search or thereafter alone couldform basis of an order under Section 158BB. LearnedCounsel contended that the conclusions to the contraryarrived at by the Tribunal are unsustainable and should beset aside. 9. We have considered the submissions made. The relevant part of Section 158BB of the Income Tax Act readsthus: “(1) The undisclosed income of the blockperiod shall be the aggregate of the total incomeof the previous years falling within the blockperiod computed, in accordance with theprovisions of this Act, on the basis of evidencefound as a result of search or requisition of booksof account or other documents and such othermaterials or information as are available with theAssessing Officer and relatable to such evidenceas reduced by the aggregate of the total income,or as the case may be, as increased by theaggregate of the losses of such previous years,determined,―” 10. A reading of this provision would show that the I.T.A. No.222 of 2012 undisclosed income for the block period shall be computedin accordance with the provisions of the Act on the basis ofthe evidence found as a result of search or requisition ofbooks of account or other documents and such material orinformation as are available with the Assessing Officer andrelatable to such evidence. The expression “such evidence”should be read as evidence found as a result of search orrequisition issued. So read, computation of undisclosedincome shall be; 1)on the basis of evidence found as a result of searchunder Section 132; or under Section 132; or 2)on the basis of requisition of books of account orother documents under Section 132A;other documents under Section 132A; 3)and such other materials or information as areavailable with the Assessing Officer and relatable tosuch evidence, viz. the evidence found as a result ofsearch or requisition of books of account or otherdocuments.available with the Assessing Officer and relatable tosuch evidence, viz. the evidence found as a result ofsearch or requisition of books of account or otherdocuments. I.T.A. No.222 of 2012 1)on the basis of evidence found as a result of searchunder Section 132; or under Section 132; or 2)on the basis of requisition of books of account orother documents under Section 132A;other documents under Section 132A; 3)and such other materials or information as areavailable with the Assessing Officer and relatable tosuch evidence, viz. the evidence found as a result ofsearch or requisition of books of account or otherdocuments.available with the Assessing Officer and relatable tosuch evidence, viz. the evidence found as a result ofsearch or requisition of books of account or otherdocuments. I.T.A. No.222 of 2012 11. If the Section is so read, the computation ofundisclosed income can be made by the Assessing Officer onthe basis of evidence found as a result of search orrequisition of books of account or documents and such othermaterials, if such other material or information is relatableto evidence recovered at the time of search or gathered onthe basis of requisition of books of accounts or otherdocuments. This Section does not authorise computation ofundisclosed income relying on evidence unearthed in asurvey under Section 133A. Therefore, as in this case, onthe basis of a survey conducted before the search andseizure operation, if the Assessing Officer comes intopossession of materials and information, such evidence ormaterials recovered in the survey cannot be relied on forcomputing the undisclosed income for the block period. 12. This very question was considered by the MadrasHigh Court inCommissioner of Income Tax v.G.K.Senniappan [2006] 284 ITR 220 (Mad), and it was held thus: “Section 158BB occurs in Chapter XIV-B,which provides for special procedure forassessment of search cases. The computation ofundisclosed income of the block period iscontemplated under Section 158BB. As per thesection, the undisclosed income of the blockperiod should be the aggregate of the totalincome of the previous years falling within theblock period computed in accordance with theprovisions of this Act, on the basis of the evidencefound as a result of search or requisition of booksof account or other documents and such othermaterials or information as are available with theAssessing Officer and relatable to such evidence,as reduced by the aggregate of the total income,or as the case may be, as increased by theaggregate of the losses of such previous years. A mere reading of the above provisionclearly indicates that the sentence "such othermaterials or information as are available with theAssessing Officer" cannot be bisected or taken inisolation for the purpose of computation. Suchother materials or information as are availablewith the Assessing Officer, should as per thesection relatable to such evidence. The word"such" used as a prefix to the word "evidence"assumes much significance, in this provision, as itindicates only the evidence found, as a result ofsearch or requisition of books of account or otherdocuments, at the time of search. Any othermaterial cannot form basis for computation of I.T.A. No.222 of 2012 -12- undisclosed income of the block period.” Similar principles have been laid down by the Madhya Pradesh High Court in C.I.T. v. K.C.Nirmal Kumar (M.P.)[263 ITR 77], and again by the Madras High Court in CITv. S. Ajit Kumar (Mad.) [2008] 300 ITR 152 (Mad) andCommissioner of Income Tax v. P.K.Ganeshwar[2009] 308 ITR 124 (Mad). In the light of statutoryprovision and the principles laid down in the aforesaidjudgments, the order passed by the Tribunal sustaining theaddition is legally untenable. 13. Further, insofar as this case is concerned, on facts, there is yet another difficulty for the Revenue. In theassessment order, the addition has been made stating thus: “Undisclosed sale price of City Centre space inthe case of Shri Jamaluddin and Shri V. Muneer: -12- undisclosed income of the block period.” Similar principles have been laid down by the Madhya Pradesh High Court in C.I.T. v. K.C.Nirmal Kumar (M.P.)[263 ITR 77], and again by the Madras High Court in CITv. S. Ajit Kumar (Mad.) [2008] 300 ITR 152 (Mad) andCommissioner of Income Tax v. P.K.Ganeshwar[2009] 308 ITR 124 (Mad). In the light of statutoryprovision and the principles laid down in the aforesaidjudgments, the order passed by the Tribunal sustaining theaddition is legally untenable. 13. Further, insofar as this case is concerned, on facts, there is yet another difficulty for the Revenue. In theassessment order, the addition has been made stating thus: “Undisclosed sale price of City Centre space inthe case of Shri Jamaluddin and Shri V. Muneer: The company had sold 2911 Sq. Ft. of City Centre space to Malabar Tower and Superior Decor of ShriJamaluddin and Shri V. Muneer on 26.03.2002.During the course of search certain loose papersnumbered 1 to 27 inventorised as ORF 67 werefound and seized from the office premises of the assessee company. Page 16 of this set of loosepapers is page 2 of an agreement entered into byShri Jamaluddin for purchase of 1711 Sq. ft. ofCity Centre space @ Rs.5,000/- per Sq. ft. Thispage of agreement, though not signed by theseller, was signed by the purchaser, ShriJamaluddin. During the course of an independentsurvey action conducted by the Department at thebusiness premises of Shri Jamaluddin and Shri V.Muneer, evidences of on-money payment ofRs.51,00,000/- for purchase of 2911 Sq.ft of CityCentre space was detected. These evidences werein the nature of certain loose papers, the entries inwhich were explained by Shri V. Muneer who wasexamined u/s 131. In the statement on oathrecorded during the course of survey, ShriV.Muneer stated that the purchases were initiallynegotiated @ 4400 per. Sq.ft. for 1711 Sq.ft areaand @ Rs.4,000/- per sq. ft. of 922 Sq.ft. area. Healso stated that the deals were finally struck fortotal consideration of Rs.1,01,50,000/- out ofwhich Rs.51,50,000/- only was documented.Attention of Shri P.V.Raghavan, Officer in-chargeof the assessee company was drawn to thestatement of Shri V. Muneer. He, however, deniedto have received any amount in excess of thedocumented consideration towards the actual saleprice of 2911 Sq.ft. to the above parties. Theincriminating documents found during the courseof survey and the statement of Shri V.Muneerconstituted “any other material in possession ofthe Assessing Officer” for the purpose ofcomputation of undisclosed income u/s 158BB. Itis also seen that this information also related tothe second page of the agreement, Shri Jamaluddin had made with the sellers. Theamount of Rs.51,00,000/- admitted to have beenpaid by Shri Jamaluddin and Shri V. Muneer inexcess of documented consideration for purchaseof 2911 Sq.ft. of City Centre space during F.Y.2001-02 is brought to tax part of the undisclosedincome of the assessee company for A.Y.2002-03.” 14. Although in the initial part, it is stated that during the course of search, certain loose papers numbered as 1 to27 inventorised as ORF 67 were found and that, page 16 ofthe set of loose papers is page No.2 of an agreemententered into by Shri Jamaluddin for purchase of 1711 sq. ft.of City Centre space @ `5,000/- per Sq. Ft., in the latterpart of the same paragraph, it is stated that theincriminating documents found during the course of surveyand the statement of Shri V. Muneer consituted any othermaterial in possession of the Assessing Officer. In order toreconcile the apparent contradictions in what is stated in theassessment order, the learned Senior Counsel for theRevenue wanted us to read the words “survey” as “search”.This plea is raised for the first time and, therefore, cannot be accepted. 15. Even if it is assumed that it was during the search be accepted. 15. Even if it is assumed that it was during the search that ORF 67 was recovered and that the page 2 of anagreement is part thereof, according to us, that case of theRevenue raised for the first time is not substantiated in anymanner. Annexure-B is the Panchanama prepared at thetime of search on 29.01.2003. Insofar as ORF 67 isconcerned, in the Panchanama, it is stated that ORF 67consists of “loose sheets containing statement of accounts,Serial Nos.1 to 23”. Therefore, the Mahazar prepared at thetime of search does not record that ORF 67 included page 2of an agreement as stated in the Assessment Order or ascontended before this Court. 16. Now we shall refer to Annexure-A, which is the letter dated 03.12.2004 sent by the Assessing Officer to theassessee. In this letter, it is stated that among theundisclosed income allegedly earned by the assessee, one ofthe items is the undisclosed sale price of City Centre space I.T.A. No.222 of 2012 in the case of Shri Jamaluddin and Shri V. Muneer and that one of the items is “undisclosed sale price of City CentreSpace in the case of Shri Jamaluddin and Shri V. Muneer `51lakhs during the financial year 2002-03”. Thereafter, it isagain stated that “the above are evidenced from seizeddocuments ORF-6, 8, 10, 14, 15, 27, 28, 40, 159 andimpounded documents from the premises of Shri AbdulSalam and Shri Jamaludeen.” Therefore, if what theAssessing Officer stated in Annexure-A is read, theincriminating documents leading to the undisclosed incomein question were recovered at the time of survey and the listof aforesaid seized documents does not include ORF 67 andif Annexure-B is read, the incriminating material was notrevealed from ORF 67. Therefore, Annexures-A and B arecontradictory to each other. 17. Therefore, this appeal is disposed of answering thequestions of law in the above manner. The Assessing Officer will reconsider the matter as I.T.A. No.222 of 2012 -17- ordered by the Tribunal. Sd/- ANTONY DOMINIC JUDGE kns/- Sd/- DAMA SESHADRI NAIDU JUDGE //TRUE COPY// P.S. TO JUDGE