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Shri Gopal Lal Badruka, Hyderabad v. Dcit, Central Circle-2, Hyderabad

Income Tax Appellate Tribunal

Nov 26, 2010

Judgment

Subsequent
References

CaseIQ

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Summary of the Opinion — Appeals relating to Ahura Holdings & individual partners (assessment years 2003-04 to 2007-08)

Factual and Procedural Background

These consolidated proceedings relate to 19 appeals directed against different orders of the CIT(A)-I, Hyderabad dated 22-12-2009, covering assessment years 2003-2004 to 2007-2008. The appeals involve common issues and were clubbed for hearing and disposal.

The principal factual matrix (as recorded in the opinion) is:

The assessee firm Ahura Holdings (real estate business) and its partners were subject to search and seizure operations u/s. 132 of the Income-tax Act at the premises of partner Sri Gopal Lal Badruka on 26–27 July 2006. Assessments were thereafter framed under section 153A (in the hands of the searched person) and under section 153C (in the hands of other persons, including the firm and other partners).
The seized material indicated that the firm was registered in 2003 and that a General Power of Attorney (GPA) and sanctioned layout existed for development of land at 205, Tarbund, Secunderabad Cantonment. The land was developed into 32 plots and sales occurred across the years 2003-04 through 2006-07/2007-08.
Assessing Officer (AO) made additions inter alia for: (a) alleged unsupported expenditure; and (b) suppression of sale receipts / receipt of "on-money" (unaccounted consideration) determined from seized documents, buyers' statements and partner statements. Quantified additions were made for multiple assessment years (details of figures are recorded in the opinion).
The CIT(A) largely confirmed AO's assessments for most years but gave limited relief for A.Y. 2004-05 by estimating unaccounted receipts using certain ratios for layout and open plots. Both the assessee (firm and partners) and the Revenue filed appeals/cross-appeals before the Tribunal.

Legal Issues Presented

Whether the expenditure of Rs. 1,73,191 claimed for A.Y. 2003-04 (incurred before alleged commencement of business) was allowable as business loss or should be capitalized / treated as prior period expenditure because the firm had not commenced business in that year.
Whether the Assessing Officer was required to confine computation of income under sections 153A/153C only to incriminating material found during the search (i.e., whether section 158BB(1) / block provisions constrain AO when search is after 1-6-2003).
Whether the AO could interpolate and estimate unaccounted "on-money" for all plot transactions (32 plots) based on seized documents, statements and other material, even where direct seized evidence existed only for some plots.
Whether the unaccounted receipts (on-money) should be assessed in the hands of the firm (Ahura Holdings) or in the hands of individual partners who admitted/denied receipt.
Methodology for quantification of unaccounted receipts (ratios applied for layout and open plots; appropriate ratio for A.Y. 2005-06).
Allowability of ad-hoc/unrecorded expenses against unaccounted receipts — whether a profit-only approach or ad-hoc deduction should be permitted absent contemporaneous evidence.
Whether large consultancy payments (Rs. 1,02,67,250) to Shri Sridev Sharma were admissible deductions where documentation and proof of services were challenged.

Arguments of the Parties

Assessee's (Appellant) Arguments

On commencement of business: The assessee argued that business commencement is to be determined as soon as expenditure is incurred and that entering into GPA in April 2003 did not necessarily establish commencement; relied on certain judicial authorities regarding commencement and treatment of pre‑commencement expenses.
On computation under s.153A/153C: The assessee contended that income under those sections should be computed only from incriminating material found during the search (i.e., AO should confine himself to search material and related information) — relying on authority(s) for the proposition that block computation must be read with limitation to search material.
On quantification of on-money: The assessee said there was direct seized evidence for on-money in respect of only 8 out of 32 plots; for the balance 24 plots there was no seized material. Some buyers (5 of 8) denied payment; three admitted. No opportunity was given to cross-examine buyers relied upon by AO/CIT(A). Statements under s.131 were recorded long after the search (2008) and thus lack evidential value, alleged coercion in recording statements, and absence of corresponding investments for the claimed on-money.
On assessment in the firm's hands: The assessee asserted that on-money was received by certain partners individually and offered to tax in their hands; the firm should not be assessed for on-money it did not itself receive.
On methodology: Where books are not properly maintained, the assessee proposed net worth method or other methods (relying on K.V. Srinivasa Rao TTJ decision) rather than a blanket interpolation across all transactions.
On ad-hoc expenses and consultancy charges: The assessee contended ad-hoc allowance should be given (profit portion only) and that consultancy payments were genuine, supported by TDS and assessment of the recipient; services were essential to obtain Defence Estate approvals.

Revenue's (Department / Respondent) Arguments

AO relied on seized documents, buyers' statements and partner admissions; these collectively showed receipt of on-money in multiple transactions and justified interpolation to other transactions for which direct material was not seized.
Statements recorded from the managing partner under s.131 (and buyers' statements) contained admissions that on-money was received for more than one plot; no material was shown proving coercion; statements are admissible for assessment.
When regular income from plot sales is offered by the firm, the undisclosed element (on-money) connected with the same transactions should also be assessed in the firm's hands; partners received on-money in representative capacity.
Method of estimation: Reliance placed on judicial authority (Rajnik & Co. v. ACIT and CIT v. H.M. Esufali H.M. Abdulali) to show that interpolation/estimation by AO on a rational basis is permissible; some guesswork is inevitable but bona fide, rational estimates are upheld.
Ad-hoc expenses: No evidence was produced to show additional unrecorded expenses; recorded expenses were already allowed; therefore ad-hoc deductions could not be granted without proof.
Consultancy payment: Mere TDS and assessment of recipient do not automatically validate expenditure; assessee failed to prove nature and reasonableness of services provided by Mr. Sridev Sharma.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court (as stated in the opinion)
Agrocargo Transport Ltd. v. Commissioner of Income-Tax (HC) (224 ITR 90)	Relied upon by the assessee's counsel in relation to commencement of business / treatment of pre-commencement expenditure.	The judgment was relied on by the assessee's counsel but the Tribunal accepted the lower authorities' finding that the firm had not commenced business in the relevant year and dismissed the appeal on that ground.
AAA Fun-N-Food (P) Ltd. v. JCIT (MP HC) (279 ITR 219)	Relied upon by the assessee's counsel (context: commencement of business / pre-commencement expenditure).	Relied upon by the assessee's counsel; the Tribunal did not accept the assessee's contention and upheld the disallowance on the basis that business had not commenced in the year concerned.
Commissioner of Income-Tax v. Govind Grah Nirman Sahakari Samiti Ltd. (258 ITR 208, Raj HC)	Relied upon by the assessee's counsel (context: commencement of business / pre-commencement expenditure).	The Tribunal noted it was relied upon by the assessee but affirmed the lower authorities' finding that the firm had not commenced business in the year; thus the disallowance stood.
Rajnik & Co. v. ACIT (251 ITR 561) (AP HC)	Relied upon by the Revenue for proposition that where evidence shows suppression/omission across the block period, additions by interpolation for other years/transactions can be sustained.	Cited and applied by the Tribunal to support the Assessing Officer's and CIT(A)'s approach of interpolating on-money across transactions and years where the material and admissions pointed to a pattern of suppression.
CIT v. H.M. Esufali H.M. Abdulali (90 ITR 271) (SC)	Supreme Court authority stating that estimation of escaped turnover may involve guesswork; however, if estimate is bona fide and rational, absence of strong proof does not vitiate it.	Cited by Revenue and relied upon by the Tribunal to uphold the AO's and CIT(A)'s rational interpolations and estimates of unaccounted receipts where supported by seized material and statements.
K.V. Srinivasa Rao v. ACIT (125 TTJ 560) (Tribunal, Visakhapatnam Bench)	Relied upon by the assessee to support application of net-worth method or alternate methods where books are not properly maintained.	The Tribunal recorded that the assessee relied on this decision but held that the net worth method was not appropriate for the present facts because the search did not unearth all unaccounted assets and the seized material identified unrecorded on-money receipts specifically.

Court's Reasoning and Analysis

The Tribunal's analysis proceeds in a structured way and is confined to the evidence and legal provisions as recorded in the opinion:

Interpretation of statutory regime (paras 16–17):
- The Tribunal examined sections introduced by the Finance Act, 2003 and noted that section 153A (and 153C) applies to searches conducted on or after 1-6-2003. Section 158BI (as inserted) excludes operation of the Chapter XIVB block provisions (section 158BB(1)) for searches after 1-6-2003.
- Result: The special block computation regime under section 158BB(1) (which requires computation on the basis of material found during the search) does not apply to searches after 1-6-2003. Therefore AO in cases like the present (search in July 2006) is not strictly confined to incriminating material found during the search; he may rely on all material available and relatable to the assessment, even if not physically seized during the search.
Validity of additions by interpolation (paras 18–23, 43):
- The AO made additions based on seized documents, buyers' statements and partner statements showing receipt of on-money. The Tribunal accepted that where the material and admissions establish a pattern of receipt of unrecorded consideration, the AO may interpolate and estimate on-money for other transactions even if direct seized material is available only for some transactions.
- The Tribunal relied on precedents (Rajnik & Co. and CIT v. H.M. Esufali H.M. Abdulali) to the extent that a bona fide, rational estimate by the assessing authority is permissible and that some guesswork is inevitable when estimating escaped turnover, provided the estimate is rational and not capricious.
Taxability in the hands of the firm versus partners (paras 21, 52):
- The Tribunal found the income from on-money to have a direct nexus with the firm's real estate business and that the partners received such payments in their representative capacity (as agents of the firm). The Tribunal considered it absurd to tax the regular recorded sales income in the firm and the associated unrecorded element of the same transactions in the partners' hands.
- Therefore, the Tribunal upheld assessment of on-money in the hands of Ahura Holdings under section 153C rather than solely in the hands of individual partners.
Quantification approach (paras 23–27, 54–57):
- For A.Y. 2004-05 the CIT(A) applied a ratio of unaccounted to accounted receipts of 1.8:1 for layout plots based on seized agreements showing large differentials; the Tribunal found no infirmity in that approach and confirmed it.
- For open plots the CIT(A) used a 2:1 ratio; the Tribunal found this supported by seized material and confirmed it for many years.
- For A.Y. 2005-06 the seized documentary evidence showed ratios of 1.94:1 and 1.75:1 (for two transactions). The Tribunal directed the AO to apply the average of these two ratios (1.85:1) for estimating unaccounted receipts on other plots, substituting the 2:1 ratio used by the CIT(A), and directed recomputation accordingly (thus reducing the addition slightly).
- For A.Y. 2006-07 and 2007-08 the Tribunal confirmed additions where seized documentary evidence supported quantification (examples recorded for specific plot(s)).
Ad-hoc/unrecorded expenses (paras 28–30, 60):
- The Tribunal held that ad-hoc deductions for unrecorded expenses cannot be allowed unless evidenced. Regular books already accounted for recorded expenses; the assessee had to produce contemporaneous evidence of unrecorded expenses.
- The AO was directed to re-examine seized material, partners' sworn statements and third-party statements and to decide allowability of claimed unrecorded expenditures after affording reasonable opportunity of hearing.
Consultancy payments to Shri Sridev Sharma (paras 30, 62–65):
- The Tribunal observed that the assessee failed before lower authorities to produce satisfactory documentary proof of services rendered and nexus to business, though before the Tribunal the assessee produced the assessment order of the recipient showing tax was paid by him.
- Rather than finally adjudicating the deduction, the Tribunal set aside the issue to the AO for fresh consideration and directed the assessee to substantiate genuineness and reasonableness of the payment; AO to decide after permitting evidence and hearing.
Other procedural/contentions (cross-examination opportunity; coercion) (paras 36, 58):
- The Tribunal noted that the assessee had not sought cross-examination of buyers at appropriate earlier stages, and no material was produced to establish coercion in recording partners' statements. The Tribunal therefore placed weight on seized documents and partner admissions.

Holding and Implications

Holding (core rulings):

1. ITA No. 362.H/2010 (disallowance of loss Rs. 1,73,191 for A.Y. 2003-04): DISMISSED.

2. ITA Nos. 363 to 366.H/2010 (additions for unaccounted/on-money receipts for A.Y. 2004-05 to 2007-08): PARTLY ALLOWED for statistical purposes with directions for limited recomputation for A.Y. 2005-06; most additions otherwise confirmed.

3. The Tribunal confirmed that for searches conducted after 1-6-2003 (as in this case), the AO is not restricted to relying only on the material physically seized; AO may use all material available to determine income under sections 153A/153C.

4. The Tribunal held that on-money receipts arising from sale of plots are taxable in the hands of the firm (Ahura Holdings) and not solely in the hands of individual partners.

5. The Tribunal directed remand on the consultancy deduction issue — the assessee to prove genuineness and reasonableness; AO to decide afresh.

Implications / Consequences (direct effects recorded in the opinion)

The AO's additions for unaccounted/on-money receipts were largely upheld; specific quantifications for multiple assessment years were confirmed, subject to recomputation for A.Y. 2005-06 applying an average ratio of 1.85:1 (instead of 2:1) as directed by the Tribunal.
The claim for pre‑commencement expenditure (loss for A.Y. 2003-04) was disallowed and the appeal dismissed.
The Tribunal rejected the contention that AO must confine himself only to materials seized during the search for assessments under sections 153A/153C where the search post-dates 1-6-2003; AO may rely on other available material and rational interpolation is permissible when supported.
The Tribunal remitted the consultancy payment issue to the AO for fresh decision on proof of services and reasonableness after allowing the assessee opportunity to produce evidence.
The Tribunal directed AO to re-examine claims for unrecorded/ad-hoc expenses; such deductions are not to be given unless supported by evidentiary material, and the AO should reassess after giving opportunity of hearing.
All 14 appeals/cross-appeals concerning the individual partners (listed as various ITA numbers) were dismissed, with the Tribunal finding no infirmity in directing assessment of unrecorded receipts in the firm's hands.
No novel legal principle was laid down by the Tribunal beyond applying existing statutory scheme and precedent — the decision primarily applies established principles (as cited) to the facts before it and adjusts quantification in one year; the immediate effect is on the parties and assessments rather than creating new precedent.

Disposition (as recorded)

- For the firm: ITA No. 362 (loss disallowance) dismissed; ITA Nos. 363–366 partly allowed for statistical purposes (with directions as set out above).
- For individual partners: All 14 appeals/cross-appeals listed in the opinion were dismissed.

Note: This summary reflects only the information contained in the provided opinion. No additional facts, precedent interpretations or external materials have been introduced.

Show all summary ...

1. These 19 appeals are directed against different orders passed by the CIT(A)-I, Hyderabad dated 22-12-2009 and they pertain to the assessment years 2003-2004, 2004-2005, 2005-2006, 2006-2007 & 2007-2008. Since certain common issues are involved in these appeals, they are clubbed and heard together and disposed off by this common order for the sake of convenience.

2. Now, first we will take up assessee's appeals in the case of Ahura Holidays for the assessment years 2003-2004 to 2006-2007, viz. ITA No. 362, 363, 364, 365 & 366.H/2010.

Assessee's Appeals: Ahura Holdings : Assessment years 2003-2004 to 2006-2007 ITA Nos. 362 to 366.Hyd/2010

3. The first ground in ITA No. 362.H/2010 is with regard to disallowance of loss claimed at Rs. 1,73,191/-.

4. Brief facts of the issue are that the assessee firm is engaged in the business of real estate. A search and seizure operation was conducted at the residential cum business premises of Sri Gopal Lal Badruka partner of the assessee firm u/s. 132 of I.T Act 1961 on 27-6-2006. It was found that the assessee actively engaged in developing a property situated at No. 205, Tarbund, Secunderabad Cantonment and thereafter assessment was framed u/s. 153A of Act in hands of Sri Gopal Lal Badruka in whose name warrant u/s. 132 was issued and also assessment was framed in name of this firm and also in the name of other partner viz Sri Avadesh Badruka u/s. 153C of the IT Act as assessment of income of any other than the person referred to in section 153A of the I.T Act. The assessee herein filed return of income for the Assessment year 2003-2004 admitting a loss of Rs. 1,73,191/-. The assessing officer found that the documents seized vide annexure/GLB/22B/2 (Page No. 12) reveal that the firm was registered in the year 2003. The copy of the acknowledgement of registration issued by the Registrar of Firms, Govt. of AP was found and seized as part of this Annexure. Shri Gopal Lal Badruka, the partner of the firm had obtained GPA to develop a property belonging to Mrs. Simonil Nargolwala and Mrs. Firo Colah situated at 205, Tarbund, Secunderabad Cantonment. The layout was sanctioned in favour of Shri Gopal Lal Badruka in the capacity of GPA holder for a part of the land in April 2003. The assessing officer after analyzing seized papers was of the view that the assessee firm commenced its business only in the financial year 2003-2004 relevant assessment year 2004-2005. Accordingly, the expenditure of Rs. 1,73,191/- that was incurred by the assessee in the assessment year 2003-2004 should not be allowed as a loss since the same is to be capitalized or has to be treated as prior period expenditure. Accordingly, the assessing officer disallowed the loss claimed and assessed the income at Rs. Nil. Being aggrieved against the aforesaid assessment order, the assessee has filed appeal before the CIT(A) who has confirmed the order of the assessing officer. Against this, the assessee is in appeal before us.

5. We have heard both the parties on this issue. The main contention of the assessee's counsel is that the expenditure is disallowed on the reasoning that business of the assessee is commenced only in the financial year 2003-2004 relevant to assessment year 2004-2005 and according to the learned AR the business is said to be commenced as soon as the expenditure is incurred and entering into GPA for development agreement in April, 2003 is not relevant to decide the commencement of the business. The learned AR relied on the following judgements:

1. Agrocargo Transport Ltd. v. Commissioner Of Income-Tax. HC) (224 ITR 90)

2. AAA Fun-N-Food (P) Ltd. v. JCIT (MP HC) (279 ITR 219)

3. Commissioner Of Income-Tax v. Govind Grah Nirman Sahakari Samiti Ltd. (258 ITR 208 Raj. HC).

6. The learned departmental representative relied on the order of the CIT(A). In the present case, the firm was got registered in the year 2003 and the GPA agreement for development of the property was executed in favour of Shri Gopal Lal Bhadruka, the partner of the firm to develop a property belonging to Mrs. Simonil Nargolwala and Mrs. Firoz Colah situated at 205, Tarbund, Secunderabad Cantonment. In our opinion, to allow any expenditure, it is not adequate just incurring of the expenditure. The commencement as well as carrying on of the business by the assessee is essential even in cases where there is a direct link between the loss incurred and the business. In any case, the assessee has carried on business or not, must be examined with reference to the facts of each case and no generalization can be made. In the present case, the lower authority has given a finding that the assessee has not commenced as well as carried on the business during the year under consideration. As such, this expenditure cannot be allowed as business deduction. In the result, ITA No. 362.H/2010 is dismissed.

7. The next common ground in ITA Nos. 363 to 366.H/2010 is with regard to addition of on money for all the plots and also estimating the same in the ratio as in the other plots for which evidence is found without appreciating the fact that no such on money is received in respect of other plots and treatment of entire on money receipt as income without giving deduction towards expenses instead of treating the only profit portion on such unrecorded receipts.

8. Brief facts of the issue are that the firm is engaged in the business of real estate. A search and seizure operation was conducted at the premises of the partner of the assessee, namely, Shri Gopal Lal Badruka under S. 132 of the Act on 26.7.2006 and 27.7.2006 Consequently, assessments were framed in the case of the partner Shri Gopal Lal on protective basis under notice u/s. 153A of the IT Act and assessments were framed under S. 153C of the Act in the case of the other partner, Shri Avadesh Badruka. Further, notice under S. 153C was issued to the firm, Ahura Holdings. In response to the said notice the assessee-firm filed the returns of income for the years under consideration. The assessing officer found that the document seized vide annexure A/GLB/22B(page No. 12) reveals that the firm was registered in the year 2003. Shri Gopal L. Bhadruka, the partner of the firm had obtained GPA to develop a property belonging to Mrs. Simonil Nargolwala and Mrs. Firoz Colah situated at 205, Tarbund, Secunderabad Cantonment. The layout was sanctioned in favour of Shri G.L Badruka in the capacity of GPA holder for a part of the land in April, 2003. The total land available for sale was 16803.39 sq. yards which was sold by the assessee firm Ahura Holdings in various financial years commencing from 2003-2004 after developing the said land into 32 plots. The rear side of the land was developed as a layout after obtaining necessary permission from Ministry of Defence and the said layout consisted of 16 plots.

9. In the assessment year 2004-2005, the assessee had admitted a total income of Rs. 2,11,91,490/- in the return. As per the Trading and P&L Account, the net profit from the land transaction for the year was Rs. 2,13,64,681/- which was arrived as below:

Rs. Rs. Opening stock Nil Sale Cost of land Rs. 2,00,000 Lay out plot 1,51,97,088,60 Open plot 1,98,98,937.00 Development expenses 42,27,650.98 Closing stock 16,71,438.47 Other expense 1,09,75,132.00 Net profit 2,13,64,681.00

The assessing officer has given the details of the plots sold during the financial year 2003-2004 to 2006-2007 as per the tables below:

FINANCIAL YEAR 2003-2004

S. No. Plot No. Area (in sq. Y.) Purchaser Date of sale deed Doc. No. Amount as per sale deed 1 1&2 1619.05 M. Surana 16.6.2003 1024/03 4209530 2 3&4 1598.35 D. Surana 17.7.2003 717/2003 4155580 3 5 482 P.D Pulla 29.8.2003 1460/03 1301400 4 6 25.8 Sitarama Raju 30.1.2004 155/04 107640 5 7 331.76 AG Kumaraswamy 26.5.2003 922/03 862578 6 8 300 K. Ramesh 14.5.2003 847/03 750000 7 9 300 A. Srinivas 14.5.2003 846/03 750000 8 10.part 166.66 PS Reddy 9.7.2003 1137/03 417000 9 10.part & 11 166.66 GS Reddy 9.7.2003 1138/03 417000 10 11.part 166.66 G.G Reddy 9.7.2003 1139/03 417000 11 12 250 Ms. NS Reddy 29.8.2003 144/03 625000 12 13 part A 13 Part B 189.91 133 Ms. Gopamma Ms. K. Gopamma 23.2.2003 8.3.2004 276/04 357/04 760000 532000 TOTAL 15304728 13 205 open 586.66 G.V.B Rao 19.2.2004 256/2004 2639970 14 205 open 586.66 G. Pawan 19.2.2004 257/2004 2639970 15 205 open 171.11 G.V Bhaskara Rao 19.2.2004 258/2004 769995 16 205 open 493.33 Ms. U/L. Sanghani 11.3.2004 378/04 19223962 17 205 open 538.33 K.B.R Kumar 23.10.2003 1763/03 1901000 18 205 open 427.50 Sanjeevitha & Ajay Harinath 3.2.2004 159/04 2170000 19 205 open 513.00 Maj. K. Vivek 7.1.2004 22/04 2234040 20 205 open 1405.00 R.K Jain - 5620000 TOTAL 21822899

FINANCIAL YEAR 2004-2005

Sl. No. Plot No Area (sq. yd.) Purchaser Date of deed Doc. No. Amount as per sale deed 21 Open plot 242.47 Smt. M.V Lakshmi & M Phanikumar 15.10.04 2052/04 970000 22 Open plot 85.56 Sandeep Soni & Sandesh Soni 27.10.04 2094/04 385020 23 Open plot 586.66 Sandeep Soni & Sandesh Soni 27.10.04 2093/04 2639970 24 Open plot 1119.33 Smt. Kokilaben J. Kadakia 7.2.05 193/05 5400000 25 Open plot 324 M.K Vivek 24.5.04 1187/04 1342980 26 Open plot 720 T. Anand Singh 20.1.05 79/05 3240000 27 Open plot 693 Smt. Mahathi Singh 20.1.05 78/05 3118500 28 Open plot 85.33 Smt. U.L Sanghani 22.2.05 302/05 384000 TOTAL 3856.35 17480470

Financial Year 2005-2006

29 Open plot 586.26 Smt. Subhadra 7.10.05 1596/05 2930000 30 Open plot 166.04 Ms. P. Indira 19.10.05 1640/05 825000 3755000

Financial Year 2006-2007

31 Open plot 1640.44 M. Sandhya Rani & M Subramanyam 13.7.2006 1431/06 12467344

10. During the course of assessment proceedings, a number of opportunities had been afforded by the assessing officer to the assessee but the assessee sought adjournments time and again and failed to furnish the details called for. Accordingly, the assessing officer proceeded to complete the assessment based on the evidences found and seized during the search and seizure, information gathered in course of post search investigations and in course of the assessment proceedings as also statements recorded during the search, post search and assessment proceeding and completed the assessments. While doing so, after detail analysis the assessing officer made the following additions to the returned income of the assessment year 2003-2004.

1. Expenditure not supported by any proof Rs. 1,46,94,901

2. Suppression of sale receipts on land sale Rs. 7,01,23,094

11. At the same time the assessing officer added back the business loss which was set off by the assessee while filing the return of income since the business loss claimed for the assessment years 2003-2004 was disallowed in the said assessment proceedings. Thus, the total income assessed for assessment years 2004-2005 to 2007-2008 as follows-

Assessment year 2004-2005 Rs. 10,61,82,676 Assessment year 2005-2006 Rs. 4,63,83,800 Assessment year 2006-2007 Rs. 99,08,940 Assessment year 2007-2008 Rs. 3,32,39,000

12. Being aggrieved against the aforesaid assessments, the assessee went in appeal before CIT(A) who has agreed with the order of assessing officer for the assessment year 2005-2006, 2006-2007 and 2007-2008. However, he has given partial relief for the assessment year 2004-2005. While giving the partial relief, in case of layout plots the CIT(A)considered the ratio of unaccounted receipts to accounted receipts at 1.80: 1 and determined the unaccounted receipts in respect of layout plots at Rs. 2,48,48,523/- as below:

Name of the purchaser Amount as per sale deed (Rs.) Estimated unaccounted receipts (Rs.) Devender Surana 4155580 7480044 Manish Surana 4209530 7577154 A. Gauri Kumaraswamy 862579 1552642 P. Satyajit Reddy 417000 750600 Govardhan reddy 417000 750600 Sukesh Reddy 417000 750600 Sailaja Reddy 625000 1125000 Paul D.P 1301400 2342520 V. Sitarama raju 107646 1368000 Gopamma 760000 1368000 Gopamma 532000 957600 Total 13804735 24848523

13. Further, with regard to open plots, evidence revealing unaccounted money in the form of seized documents is available in respect of 2 plots in case of K.B Ramesh Kumar and Sri Raj Kumar Jain. In this case, seized documents A/GLV/684.A/1 (page No. 194 to 205) is an agreement between the assessee and Sri Raj Kumar Jain for purchase of open plot No. 205/10 measuring 1521 sq. yd. at 11,750 per sq. yd. The actual sale consideration worked out to Rs. 1,79,65,750/- as against the registered value of Rs. 56,20,000. Thus 1405 sq. yd was transferred for a total consideration of Rs. 1,65,08,750/- resulting in a suppression of Rs. 1,08,88,750/-. Similarly in case of K.B Ramesh Kumar a money receipt was found in the seized document viz A/GLB/684.A/2 (Page No. 22 to 24) where the sale consideration for plot bearing no. 205/03 was shown at Rs. 63,00,000/- whereas the plot was actually registered for Rs. 19,01,000/-. The receipt indicates that the assessee had actually received approximately Rs. 11,250/- per sq. yard whereas it was registered at Rs. 3530/- per sq. yard. This plot was registered in October 2003. The other pots in the open plot scheme sold during the year were registered much after the transaction of Sri K.B Ramesh Kumar. Accordingly, the unaccounted receipt in respect of plot where no specific evidence has been found was as under:

Name of the purchaser Amount as per sale deed (Rs.) Estimated unaccounted receipts (Rs.) G.V Bhaskar Rao (1st Plot) 769995 1539990 Usha Sanghani 1923962 3847924 Sanjeevitha 2170000 4340000 G. Pavan 2639970 5279940 G.V Bhaskar Rao (2nd plot) 2639970 5279940 Major Vivek 2234040 4468060 Total 12377937 24755874

However, the unaccounted receipts as above do not include on money receipts where specific evidence were found during the search and also admitted by the assessee has been determined as below:

Sl. No. Name of the purchaser Actual sale price as per the seized document quantified Rs. Sale price as per the registered sale deed Rs. On money consideration Rs. 1. Akula Srinivas 2100000 750000 1350000 2. Kanday Ramesh 2100000 750000 1350000 3. K.B Ramesh Kumar 6070000 1901000 4169000 4. Raj Kumar Jain 16508750 5620000 10888750 26778750 9021000 17757750

As against Rs. 7,01,23,094 determined by the assessing officer as unaccounted income by way of on-money, the CIT(A) estimated the unaccounted receipts on account of on-money in respect of plots sold during the previous year relevant to assessment year 2004-2005 at Rs. 6,73,62,147 as under-

Rs. a) Unaccounted receipts on layout plots 2,48,48,523/- b) Unaccounted receipts on open plots 2,47,55,874/- c) Unaccounted receipts as per documentary evidence 1,77,57,750/- Total 6,73,62,147/-

For the other assessment years under appeal, the unaccounted on-money determined by the assessing officer, which is confirmed by the CIT(A) as follows-

For the A.Y 2005-2006

a) Unaccounted receipts on open plots 1,14,43,940/- b) Unaccounted receipts as per documentary evidence 2,03,44,400/- Total 3,17,88,340/-

For the A.Y 2006-2007

Unaccounted receipts as per documentary evidence 68,45,000 Total 68,45,000

For the A.Y 2007-2008

Unaccounted receipts as per documentary evidence 2,18,32,656 Total 2,18,32,656

Aggrieved by the orders of the CIT(A), assessee preferred these appeals before us.

14. The learned AR submitted that there is evidence in respect of receipt of on money on 8 plots, out of buyers of 8 plots, three persons admitted the payment of on-money, 5 persons denied the same and there is no evidence for receipt of on money relating to other 24 plots. No seized materials were found for the receipt of the on money on 24 plots. No opportunity has been given to the assessee to cross examine the buyers who have confirmed the payment of on money. No corresponding assets were found for the investment of on money receipts. The sworn statement was recorded u/s. 131 of the Act on 7.11.2008, 14.11.2008 and 21.11.2008 after a long time of the search action which was took place on 26.7.2006 and 27.7.2006 According to learned AR, the statement recorded u/s. 131 of the Act has no evidential value. Further, the contention of the assessee's counsel is that the entire on money receipt cannot be considered in the hands of the firm and the firm has nothing to do with the same and that only the partners Shri Gopal Lal Badruka and Shri Avadesh Badruka were received the on money and the same was offered to tax in their individual hands. More so, other partners disowned the receipt of this on money by the firm and they have filed confirmation to that effect. Even, it was stated by the partners Shri Gopal Lal Bhadruka in his statement recorded u/s. 132(4) that the unrecorded receipts and the income for the same belong to him and to his son and not to the partnership firm. Without prejudice to the above arguments, the learned AR submitted that the entire on money cannot be considered as income in the hands of the assessee-firm. Further, there is no evidence or seized material regarding the receipt of on money in respect of all plots and there is only evidence/seized material in respect of only 8 plots out of 32 plots. According to him, the assessing officer is not justified in estimating receipt of on money in respect of all plots. He submitted that the assessing officer wrongly estimated the unrecorded sale consideration without referring to any seized material. According to learned AR, some of the buyers denied the payment of on money and the payment of on money cannot be uniform to all plots and it changes from plot to plot depending upon marketing conditions. He submitted that the reliance placed by assessing officer on the judgement of Supreme Court in the case of CIT v. H.M Esufali H.M Abdulali (90 ITR 271) (SC) is misplaced. Further, he submitted that the net worth method of determination of undisclosed to be considered in the absence of proper maintenance of books of account on the basis of which profits of the assessee can be determined. For this purpose, he relied on the order of the Visakhapatnam Bench of the Tribunal in the case of K.V Srinivasa Rao v. ACIT (125 TTJ 560).

15. On the other hand, the DR submitted that the assessee sold 32 plots during the block period and there is direct evidence in respect of receipt of on money in case of 8 plots and it is irrelevant as to how many parties have confirmed the payment of on money. The statement recorded from the Managing Partner shows that the assessee has received on money with reference to all plots and the sworn statement is not given by the partner under duress and no coercion was exerted on the managing partner while recording his statement. He drew our attention to the sworn statement of Shri Gopal Lal Badruka recorded u/s. 131 of the Act on 7.11.2008 specifically to the question Nos. 11, 26 & 28 wherein the Managing Partner has confirmed the receipt of on money on more than one occasion. The development activities on land were carried by the firm only and not by partners. The partners have nothing to do with the receipt of the on money. The real estate business was carried on by the firm and not by the partners. When the regular income generated from the business is shown in the hands of the firm, on same logic the undisclosed income also to be brought to tax in the hands of firm only. He submitted that there is a suppression of income by the assessee. When the methodology of suppression has been identified and the partner also has accepted the suppression, there is no question of confining the determination of the income by way of on-money only to the extent of evidence found during the course of search and based on such material evidence on record, receipt of on money has to be determined by interpolating to all the transactions relating to 32 plots. The undisclosed income cannot be determined on the basis of investment, since there is no necessity of unearthing all the investments or unrecorded assets during the course of search action. Entire unrecorded income may not result in the making of investments by the assessee. Nexus of income with the assets need not be proved by the department, while determining the undisclosed income. As for the allowability of expenses out of such undisclosed income, he submitted that there is no evidence for incurring of expenditure. Regarding assessment of undisclosed income in the hands of the partners instead of firm, he submitted that the firm is carried on the business and not the partners and the land is also possessed by the firm which is evident from the agreement for sale which is placed on record in PB No. 1 at page Nos. 32 to 47. Further the learned DR relied on the judgement of Jurisdictional High Court in the case of Rajnik & Co. v. ACIT (251 ITR 561) (AP HC) and in the case of CIT v. H.M Esufali H.M Abdulali (90 ITR 271) (SC).

16. We have heard both the parties on this issue. The first contention of the learned authorised representative is that for the purpose of computing the income under section 153A/153C of the I.T Act, the assessing officer has to confine only to the incriminating material found during the course of search operations. Let us now examine whether the assessing officer has to confine himself to the incriminating material found during the course of search operation for the purpose of computing the income under section 153A/C of the I.T Act. We have carefully gone through the section 153A/C of the I.T Act. Section 153A is incorporated in the statute book by Finance Act, 2003 w.e.f 1-6-2003. This section viz., section 153A is applicable in respect search conducted on or after 1-6-2003 and S. 153C of the act is applicable in the cases of assessment of persons, other than the searched party, as in the case of the assessee firm. By the very same Finance Act, 2003 the Legislature incorporated section 158BI of the Act which reads as follows:—

“The provisions of this Chapter shall not apply where a search is initiated under section 132, or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003.”

In view of section 158BI, it is very clear that Chapter XIVB which prescribes special provision for assessing of income in search cases is not applicable in respect of cases where search was initiated on and from 1st June, 2003. In the case before us admittedly the search was conducted on 26 July, 2006 and 27 July, 2006 at the residential and business premises of Shri Gopal Lal Badruka under S. 132 of the Act. Therefore the provisions of Chapter XIV B are not applicable to the present assessee. In other words the income has to be computed under section 153A/153C which falls under Chapter XIV of the I.T Act. Therefore, S. 158 BB(1) which falls in Chapter XIV B is not applicable to the facts of the present case.

17. Now coming to the contention of the assessee that the income under section 153A/153C has to be computed only on the basis of the search material, in our opinion, this contention of the assessee is misconstrued. Section 158BB in Chapter XIV B provides procedure for computation of undisclosed income in respect of searches carried out till 31-5-2003. In view of this specific provision in section 158BB(1) the undisclosed income of the block period shall be computed on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other material or information as are available with the assessing officer and relatable to such evidence found during the course of search operation. Legislature by Finance Act, 2003 w.e.f 1-6-2003 specifically excluded the operation of section 158BB (1) in respect of searches initiated on and after 1-6-2003. This is explicitly made clear by incorporating section 158BI w.e.f 1-6-2003. In view of this, in our opinion, the provisions of section 158BB (1) which requires the assessing officer to compute the undisclosed income for the block period on the basis of the material found during the course of search operation and the information which are relatable to the material found during the course of search operation is not applicable to the cases where the search was initiated on and after 1-6-2003. In the case before us admittedly the search was conducted on 26-7-2006 and 27-7-2006 and therefore, the provision of section 158BB(1) is not applicable. In other words, the assessing officer is not required to confine himself to the material found during the course of search operation or the information which is relatable to the search material. In our opinion, the assessing officer is well within his powers to compute the taxable income on the basis of the material on record even though such material was not found during the course of search operation. In view of the above, we are unable to find any merit in the contention of the assessee that the income under section 153A/153C has to be computed only on the basis of the material found during the course of search operation. In other words, it is not necessary for the assessing officer to confine himself only to the material found during the course of search operation. The assessing officer can also place reliance on all material available even though it is not found during the course of search operations.

18. For the purpose of making addition, the assessing officer considered the available seized material, buyers statements and partner's statements which are available on record and these statements clearly show that the assessee has also earned income by means of on money on sale of plots and assessing officer has relied on the judgment of Jurisdictional High Court in the case of Rajnik & Co. v. ACIT (251 ITR 561) (AP) and also the judgment of the Supreme Court in the case of CIT v. H.M Esufali H.M Abdulali (90 ITR 271) (SC). In the case of Rajnik & Company, the revenue found material relating to suppression of sales for the financial year 1995-1996 and 1996-1997 and 1997-1998. During the course of search operation, one of the partners admitted that the assessee had practiced suppression of sales turnover for all the assessment years which fall in the block period. In these circumstances, the Hon'ble High Court found that the evidence of the partner clearly shows that the firm has suppressed turnover even for the other years, the addition made by the lower authorities was confirmed by the High Court. In the case of CIT v. H.M Esufali H.M Abdulali, cited supra, it was held that in estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing officer while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not any one else's.

19. In view of the above judgments, in our opinion, the assessing officer was well within his powers in interpolating the receipt of on money on the basis of the material available on record, even in respect of other transactions for which no direct material was found at the time of search.

20. The next contention of the learned counsel for the assessee is that the statements of Managing Partners were taken under coercion and made to accept the same and it was stated that the statements were recorded from buyers wherein some of the buyers have denied that they have paid any extra consideration. In fact, some of the buyers have furnished the details of the on money paid and sources thereof and they have subsequently revised their return of income. No evidence as to the exertion coercion by the Department at the time of recording the statements of the assessee's partner was brought on record by the learned counsel for the assessee. Same is the position even with regard to the allegation that the assessee's partner was under duress while the statement was recorded from him. Further, grievance of the assessee, according to the learned counsel for the assessee, is that the estimation of unrecorded consideration cannot be made uniformly since the price of the plot differs from year to year depending on the market conditions. In our opinion, plots are situated at the same location having same facilities and amenities and the plot price in all practical purposes will go on increasing from year to year instead of decreasing. Further, it was categorically admitted by the partner that on money was received on all plots and also it was stated that how the on money was spent by the assessee. According to the partner of the assessee firm, the undisclosed income generated out of sale of plots was made for investment in acquisition of following properties:

i) House property owned by Gopal Lal Badruka at plot No. 684.A, Road No. 33, Jubilee Hills, Hyderabad acquired on 18-2-05 for consideration of Rs. Rs. 80 lakhs. Later the property was renovated with the cost around Rs. 5 to 6 crores.

ii) Purchase of 1.05 acres of land at Coonoor, Tamilnadu by one of the partners Sri Avadesh Badhruka.

iii) Payment of Rs. 51 lakhs to Mirza Baig by Shri Gopal Lal Badruka to settle certain disputes

iv) Purchase of house property at Coonoor for Rs. 15 lakhs by Shri Avadesh Badruka

v) Cash seizure of Rs. 1,43,34,500 at the residence Shri Gopal Lal Badruka.

vi) Jewellery seized of Rs. 11,20,116 at the residence of Shri Srikanth Ganeriwal owned up by Shri Gopal Lal Badruka and family members.

21. Further, it is not in dispute that the assessing officer proceeded on the basis of seized material which was found during the course of search action in respect of 8 plots which are as follows-

Sl. No. Name of the purchaser Actual sale price as per the seized document quantified Rs. Sale price as per the registered sale deed Rs. On money consideration Rs. Relevant Financial Year Reference seized material Nature of seized material 1 Akula Srinivas 2100000 750000 1350000 2003-2004 A/GLB/684.A/1 Page No. 143 to 154 Agreement of sale dated 24-1-2003 2 Kanday Ramesh 2100000 750000 1350000 2003-2004 A/GLB/684.A/1 Page No. 183 to 193 Agreement of sale dated 24-1-2003 3 KB. Ramesh Kumar 6070000 1901000 4169000 2003-2004 A/GLB/684.A/2 Page No. 22 to 24 Receipts dated 17.8.2003 4 Raj Kumar Jain 16508750 5620000 10888750 2003-2004 A/GLB/684.A/1 Pages No. 194 to 205 Copy of Agreement of sale dated 26.8.2003 5 Kokilaben Kodakia 14600000 5400000 9200000 2004-2005 A/GLB/684.A/1 Page No. 155 to 161 Agreement of sale dated 8-1-2005 6 P. Anand Singh & his wife 17502900 6358500 11144400 2004-2005 A/SG/01 Page No. 2 Receipts dated 11.11.2004 7 Mydem Subrahmany am/Mydem Sandhya Devi 34300000 12467344 21832656 2006-2007 A/GLB/684.A/1 Page No. 125 to 130 Agreement of sale dated 9.3.2006 8. P. Subhadra/P. Indira 10600000 3755000 6845000 2005-2006 A/SG/01 Page No. 1 Receipt dated 8.5.2003 Total 103781650 37001844 66779806

Further, when the partner of the assessee firm namely, Sri Gopal Lal Badruka deposed in the statements under S. 131 of the Act on various dates, i.e on 711.2008, 14.11.2008 and 21.11.2008 in the presence of his son (who is also a partner), accepting receipt of on money over and above the registered price, there is no reason to overlook this statement since these admissions by the oral statements can also form part of the material for the purposes of making assessment. For non-consideration of this statement, the assessee is required to prove with more substantial material that the admission made on earlier occasions are contrary to material available on record. The assessee cannot get away from the statement, simply by saying that the admission made by the partner is on account of coercion There is no material before us to show that the assessee has made such statement contrary to any material or on account of coercion. The material available on record suggested that the assessee is in the habit of receipt of on-money over and above the registered price of the plot and this on-money receipt not recorded in the regular books of account and therefore, it is a clear case of suppression of on-money receipts, which has to be brought to tax in the hands of the assessee firm in the impugned block assessment under S. 153C of the Income-tax Act. Therefore, the assessing officer is justified in making the assessment in the hands of the firm on the basis of material available on record. The on-money receipt to be assessed in the hands of the firm since the firm is engaged in the business of land transactions and also since regular income generated from disclosed business of sale of plots has been offered for assessment in the hands of the firm. The on-money receipts, though received by the partners, the partners have received on behalf of the firm in their representative capacity and as its agents and they have nothing to do with the business of the assessee firm, other than as a partner. The on-money is having direct nexus with the land business transactions of the assessee firm. It leads to absurd results, if the regular income from the sale of plots is assessed in the hands of the firm and the on-money in relation to the very same transactions of the firm was assessed in the hands of the partners firm directly. Thus, there is no merit in the arguments of the learned counsel for the assessee, that the on-money receipt is to be assessed in the hands of the partners. More so, it is an admitted fact that on-money receipt was signed by the partners of the firm on behalf of the assessee firm, as a representative of the firm. As such, it is only the firm which has to be assessed even in respect of income by way of on-money.

22. In the circumstances, it has to be concluded that the assessee is in the habit of receiving on money on the sale of all the plots, irrespective of the year of sale and it is to be assessed on income basis and not on the net worth basis as claimed by the assessee. In the present case, net worth method is not appropriate as search action has not resulted in the unearthing of all the unaccounted assets and it has resulted in the identification of only the unrecorded on-money receipts.

23. The next question before us is with regard to the quantification of on-money receipts. For the assessment year 2004-2005, assessing officer has determined the ratio of unaccounted receipts to accounted receipts at 1.8:1 in respect of lay out plots and determined the same at Rs. 2,48,48,523. With regard to this computation, we do not find any infirmity, since the seized material in the case of plot No. 8 relating to Shri A. Srinivas and Plot No. 9 relating to Shri Kanday Ramesh, indicate that those plots were registered at Rs. 2,500 per sq. yard for consideration of Rs. 7,50,000 in each case, though the seized material (sale agreement) suggests the receipt of on-money of Rs. 21,00,000 from each, with the differential on-money of Rs. 13,50,000 in each case. In the circumstances, the ratio of unaccounted receipt to accounted receipt works out to 1.8: 1. In the same ratio, the unaccounted on-receipts in respect of other lay out plots was determined. We find no infirmity in this approach of the lower authorities. We accordingly confirm the order of the CIT(A) on this aspect.

24. In the case of remaining open plots, the ratio of unaccounted receipts to accounted receipts was determined at 2:1 and unaccounted receipts was determined at Rs. 2,47,55,874. This is also based on the seized material, which has been discussed by the CIT(A) in para-4.3 of his order on pages 13 and 14 thereof, which we have already discussed hereinabove. Even in respect of these open plots, we do not find any infirmity in the order of the CIT(A), which is accordingly confirmed. The balance addition of Rs. 1,77,57,750 is on account of on-money receipt is based on the actual seized material and in the absence of any material to the contrary brought on record by the assessee, we find no justification to interfere with the order of the CIT(A) on this aspect.

25. For the assessment year 2005-2006, estimated unaccounted receipts in respect of open plots is Rs. 1,14,43,940/- and such unaccounted receipts as per documentary evidence seized at the time of search is Rs. 2,03,44,400/-, with the total additions in this respect aggregating to Rs. 3,17,88,340/-. The seized documentary evidence suggests that the ratio of unaccounted receipts to the accounted receipts in the case of Smt. Kokilaben is 1.94:1 and in case of Shri Anand Singh the ratio is 1.75:1. In our opinion, the plots are registered at the same time and it is appropriate to adopt the average of these two ratios, instead of considering a ratio of 2:1 as done by the CIT(A). We accordingly direct the assessing officer to recompute the addition on account of on-money receipt in respect of other plots by applying the average of above two ratios, i.e 1.85:1. Thus, the addition of Rs. 2,03,44,400/- in respect of unaccounted receipts based on evidence is confirmed and unaccounted receipts on other plots sustained to the extent of Rs. 1,05,85,644/- totally Rs. 3,09,300,044/-

26. For the Assessment year 2006-2007, there was seized material, marked as A/SG/01(p 1)) in the form of money receipt given by Shri Gopallal Badruka and Shri Avdesh Badruka to Smt. P. Subhadra for sale of open plot admeasuring approximately 747 sq. yards, wherein the total consideration worked out at Rs. 1,06,00,000. Later, two plots were registered for Rs. 29,30,000 and Rs. 8,25,000 in the name of Smt. P. Subhadra and her daughter, Ms. P. Indira. So, there was addition on account of unaccounted on-money, which was determined at Rs. 68,45,000, which is based on the seized material. We find the said addition to be in order and accordingly confirm the same, rejecting the grounds of the assessee on this aspect.

27. For the Assessment year 2007-2008, unaccounted on-money receipts as per documentary evidence was worked out at Rs. 2,18,32,656. The documentary evidence seized during the course of search action, vide marked A/GLB/684.A/1 (p. 125 to 130) which is an agreement entered between Shri M. Subrahmanyam and his wife Smt. M. Sandhya Rani with the assessee firm, Ahura Holdings for purchase of open plot admeasuring 1640 sq. yards at the rate of Rs. 20,910 per sq. yard. The actual consideration thus worked out to Rs. 3,43,00,000. This agreement was signed by Shri Gopal Lal Badruka, Shri Avadesh Badruka and the buyer. However, the same was registered subsequently for a consideration of Rs. 1,24,67,1344, i.e at the rate of Rs. 7,600 per sq. yard. There was a suppression to the extent of Rs. 2,18,32,656. Based on this, the assessing officer quantified the suppression of sale receipts and made the addition of Rs. 2,18,32,656. We find the said addition to be in order and accordingly confirm the same, rejecting the grounds of the assessee on this aspect. The learned counsel for the assessee has also taken a plea before us that an opportunity of cross-examining the buyers whose statements were relied upon by the department for the purposes of assessment has not been given to the assessee. In our opinion, the assessments have been made not only on the basis of statements recorded from the buyers but also on the basis of seized materials and statements recorded from the Managing Partner, Shri Gopal Lal Badruka. Further, though the assessee was given opportunity to put forth its case before the lower authorities on various occasions, the assessee has not asked for any opportunity to cross-examine the buyers. Further, the assessee could not lead any evidence before us also to point out as to how the Department has denied the opportunity of cross-examination to it. The assessee, having not sought opportunity of cross-examination at the appropriate stages before the lower authorities, cannot now make out a grievance on this score.

28. The other ground common in these appeals is with regard to allowability of ad-hoc unrecorded expenses. The contention of the learned counsel for the assessee is that the expenditure is to be allowed on adhoc basis and only profit portion in relation to the unrecorded receipts has to be considered and it is not possible to have any evidence for expenditure that is not recorded in the books of account.

29. We have heard rival submissions. According to Revenue the assessee has not kept or produced any separate accounts for such unaccounted expenses. All the expenses actually incurred by the assessee have been taken care by regular books and the same have already been allowed. According to the Revenue, the assessee dealt with the land where roads and other amenities were already provided. As such, the assessee has only carried out the work of dividing the land into plots with demarcation of road and thereafter the plots were sold. In our opinion, ad-hoc deductions towards unrecorded expenses cannot be given unless there is evidence on record regarding incurring of such expenditure for the purpose of business of the assessee. The assessee declared the undisclosed income in the hands of the partners and claimed deduction towards unrecorded expenses. The assessing officer having assessed the undisclosed income substantively in the hands of the firm and in the hands of the partners only on protective basis, disallowed the claim for ad-hoc expenses. He has brought to tax the unrecorded on-money receipts in the hands of the firm. If there are any unaccounted expenses, evidence in support of existence of such expenditure is to be on record of the assessing officer and thereafter reasonableness and genuineness of such expenditure has to be proved with evidence. Hence, the assessing officer is required to re-examine the record available with him, such as seized material, sworn statements of partners, statements recorded from third parties and any other contemporaneous record already available on the records of the Revenue, regarding the claim of the assessee that the assessee has actually incurred any such unaccounted expenditure as claimed by it and accordingly decide the allowability thereof, in accordance with law and after allowing reasonable opportunity of hearing to the assessee.

30. There is one more ground in ITA No. 363.H/2010 which is with regard to disallowance of Rs. 1,02,67,250/- being amount paid towards consultancy charges paid to Shri Sridev Sharma in spite of the fact that all the evidence available on mere surmise that it is not proved that it is for business purpose without appreciating the fact that without his service the assessee firm could not have obtained approvals from Defence Estate Office, Pune.

31. Brief facts of the issue are that the above expenditure not supported by any proof. This included Rs. 2 lakh towards cost of land, Rs. 42,27,651/- towards development expenses and Rs. 1,02,67,250 as consultancy charges. This amount was said to be paid to Shri Sridev Sharma. It was disallowed on the reason that no documentary evidence has been filed in the course of assessment proceedings. Before the CIT(A) the assessee filed copy of ledger account as well as copy of agreement with Shri Sridev Sharma of Delhi. Since the agreement was on plain paper having no signature of any witness and bearing no stamp of Shri Sridev Sharma, who has signed on behalf of SD Constructions. Against this assessee is in appeal before us.

32. The learned AR submitted that the payment to Shri Sridev Sharma is subject to TDS and the amount received by Shri Sridev Sharma was assessed to tax. The expenditure incurred wholly and exclusively for the purpose of business. The department has not doubted the payment but doubted the rendering of services by Mr. Sharma. The assessee was able to get all license in connection with the property only because of valuable services rendered by Shri Sharma.

33. On the other hand the DR submitted that because some TDS has been done on the payment made to Mr. Sharma, that payment itself does not entitled for deduction. The assessee has not able to prove the nature of services rendered by Shri Sharma. He submitted that no credibility could be given to the agreement entered by the assessee with Mr. Sharma. It is self serving document. They are not serious about the enforcement of this agreement. Shri Sharma is neither having capacity or experience in the line of real estate business. The rendering of service by Shri Sharma is doubtful. He relied on the order of the CIT(A).

34. We have heard both the parties and perused the material. The payment of the above impugned amount to Mr. Sridev Sharma towards other expenses is to be substantiated with reference to the service rendered by Mr. Sharma for the purpose of business of the assessee. Once the assessee established the nexus between the expenses and the service rendered for the business of the assessee, reasonableness of this expenditure has to be established. The assessee firm failed before the lower authorities to produce proof for the said expenditure and also failed to show that it was incurred for the purpose of business. However, before us, the assessee produced the assessment in the case of Shri Shridev Sharma for the assessment year 2004-2005 and submitted that the payment was offered to tax by the recipient and the same was also assessed to tax vide order of assessment dated 20.3.2006 passed under S. 143(3) of the Act, by ACIT Circle 24(1), New Delhi. Hence, in the interest of justice, we are inclined to set aside the issue to the file of assessing officer with the direction to the assessee to prove the genuineness and reasonableness of this expenditure as incurred wholly and exclusively for the purposes of assessee's business and thereafter the assessing officer is required decide the issue accordingly.

35. In the result, as far as these five appeals of the firm are concerned, while appeal ITA No. 362.Hyd/2010 is dismissed, the appeals ITA Nos. 363 to 366.Hyd/2010 are partly allowed for statistical purposes.

Appeals concerning Individual partners:

Cross Appeals for Assessment years 2004-2005 to 2006-2007

and assessees' appeals for assessment year 2007-2008

36. Now we will take up the other 14 appeals concerning the individual partners, viz. ITA No. 354.H/09, 583.H/2010, 355.H/2009, 584.H/2010, 356.H/2009, 585.H/2010, 357.H/2009, 358.H/2010, 580.H/2010, 359.H/2010, 581.H/2010, 360.H/2010, 582.H/2010 & 361.H/2010, which are cross appeals filed by the assessee as well as the Revenue for the assessment year 2004-2005 to 2006-2007 and the appeals for assessment year 2007-2008 filed only by the assessee.

37. These are cross appeals for assessment year 2004-2005 to 2006-2007 and assessee's appeals for assessment year 2007-2008. The assessees' grievance in their appeals are with regard to direction of the CIT(A) to assess the income from unrecorded receipts in the hands of the firm Ahura Holdings instead of accepting the undisclosed income admitted by the partners namely Shri Gopal Lal Badruka and Shri Advesh Badruka and also the grievance regarding the disallowance of ad hoc expenditure claimed by the assessee at 40% of the on money. The department's grievance is with regard to deletion of the addition made on protective basis in the hands of the individual partners i.e Shri Gopal Lal Badruka and Shri Advesh Badruka.

38. After hearing both the parties, we are of the opinion that in view of our decision in the context of the substantive assessments made in the hands of the firm, we find any infirmity in the direction of the CIT(A) to assess the income from unrecorded receipts in the hands of the firm Ahura Holdings. Consequently, there is no merit in the grounds raised in these cross appeals by the appellants in these individual partners' cases. Accordingly, all these 14 appeals in these individual partners' cases are dismissed.

39. To sum up, as far as appeals of the firm are concerned, while appeal ITA No. 362.Hyd/2010 is dismissed, the appeals ITA Nos. 363 to 366.Hyd/2010 are partly allowed for statistical purposes. The cross appeals in the cases of individual partners for assessment years 2004-2005 to 2006-2007 and the two appeals filed by the individual partners alone for assessment year 2007-2008, viz. ITA No. 354.H/09, 583.H/2010, 355.H/2009, 584.H/2010, 356.H/2009, 585.H/2010, 357.H/2009, 358.H/2010, 580.H/2010, 359.H/2010, 581.H/2010, 360.H/2010, 582.H/2010 & 361.H/2010 are dismissed as infructuous.