Asstt. Commissioner ... v. M/S Rushiraj Builder..., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

ITA No. 1802.PN/2005, (Block Period from A.Y 1997-98 to 2003-04)

Advocates

Appellant by: Shri Chetan Karia
Respondent by: Shri Hareshwar Sharma

Judges

I.C Sudhir, J.M
D. Karunakara Rao, A.M

Acts

Section 158 BB by Finance Act 2002,
u/s. 40A(3) of the I.T Act 1961
Section 158 BA

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Smart Summary

Factual and Procedural Background

This matter arises from a revenue appeal against the first appellate order of the Commissioner of Income Tax (Appeals) ("CIT(A)"). The assessee firm (builders) was subjected to a search under Section 132 of the Income-tax Act on 25 March 2003. Documents were seized and, in response to notice under Section 158BC, the assessee filed a block return declaring undisclosed income of Rs. 50,00,000.

During assessment it was found from seized material that the assessee developed the "Pratiksha Apartment" on plot No. 33 (Survey No. 705/2/1). Seized documents (notably Annexure A-2 and A-9) showed entries of cash payments aggregating to Rs. 26,09,350 alleged to have been paid to Shri Narendra M. Thakkar (or his messenger) as "on-money" or premium in respect of plot No. 33. The Assessing Officer (AO) disallowed that amount as expenditure in the block assessment on the basis that persons to whom the payments were allegedly made did not have a right, title or interest in plot No. 33 as of the relevant date. The CIT(A) allowed the deduction of Rs. 26,09,350 and deleted a disallowance of Rs. 24,15,160 made under Section 40A(3) by the AO; the CIT(A) also deleted an estimated addition of Rs. 3,99,763 in respect of alleged "on-money" for two flats.

The revenue (department) appealed to the Tribunal on six specified grounds contesting the CIT(A)'s findings concerning (1) allowance of Rs. 26,09,350, (2) finding that the seized documents established the existence of that cash payment, (3) deletion of the Section 40A(3) disallowance of Rs. 24,15,160, (4) whether such disallowance could be treated as undisclosed income under Section 158B, (5) whether disallowance under Section 40A(3) in block assessment falls outside Chapter XIV-B despite Section 158BH, and (6) deletion of the addition of Rs. 3,99,763 in respect of two flats. The Tribunal heard the parties, reviewed the lower authorities' orders, the seized material and decisions cited, and delivered the impugned opinion dismissing the appeal.

Legal Issues Presented

Whether the CIT(A) erred in directing allowance of a deduction of Rs. 26,09,350 as cash payment made to Shri Narendra Thakkar in respect of premium towards plot No. 33 for the "Pratiksha Building" against the "on-money" receipts declared for the Pratiksha Project on plot No. 33.
Whether the CIT(A) erred in holding that the existence of the cash payment of Rs. 26,09,350 in respect of the Pratiksha Project on plot No. 33 is established by the seized documents.
Whether the CIT(A) erred in deleting the Assessing Officer's disallowance of Rs. 24,15,160 made under Section 40A(3) of the Income-tax Act, 1961.
Whether disallowance under Section 40A(3) can be constituted as undisclosed income within the definition of Section 158B of the Income-tax Act.
Whether disallowance under Section 40A(3) in a block assessment is outside the ambit of Chapter XIV-B of the Act (despite provisions such as Section 158BH).
Whether the CIT(A) erred in deleting the addition of Rs. 3,99,763 made by the Assessing Officer in respect of alleged "on-money" receipt for two flats sold by the assessee.

Arguments of the Parties

Revenue (Appellant) — submissions recorded in the opinion

The grounds in the appeal challenge the CIT(A)'s allowance of the Rs. 26,09,350 deduction and its finding that the seized documents established those cash payments.
The AO disallowed the cash payments on the basis that persons to whom payments were allegedly made (e.g., Shri Jitendra M. Thakkar / Shri Narendra M. Thakkar) did not have right, title or interest in plot No. 33 as on the relevant date; the Department placed reliance on the assessment order in support of its grounds.
With respect to deletion of the Section 40A(3) disallowance, the Revenue cited several decisions (including Ganesh Foundry & others and CIT v. Sai Metal Works) in support of the contention that Section 40A(3) should be applicable and the disallowance justified.
For the two-flat addition, the AO estimated Rs. 3,99,763 as "on-money" receipt; Revenue placed reliance on the assessment order to defend that estimation.

Assessee (Respondent) — submissions recorded in the opinion

The assessee argued that seized documents (Annexure A-2 and A-9 and booking register A-9) show specific cash payments totalling Rs. 26,09,350 made in respect of plot No. 33 and that negotiations for plots were conducted through Shri Jitendra M. Thakkar while Shri Narendra M. Thakkar collected premiums; therefore these cash payments should be allowed as expenditure against "on-money" receipts.
The assessee relied on affidavits and seized material showing entries identifying Shri Narendra M. Thakkar and/or his messenger as recipients of cash and maintained that the AO accepted similar payments in respect of other projects; consequently, the specific payments for plot No. 33 should not be disallowed merely because of the name of the payee.
On the Section 40A(3) issue, the assessee relied on decisions favourable to taxpayers (including TCV Engineering Ltd. v. ACIT, Cargo Clearing Agency (Guj.) v. JCIT and other Tribunal and High Court decisions) to contend that disallowance under Section 40A(3) is outside the special procedure of Chapter XIV-B for block/search assessments and therefore should not apply to unrecorded/unrevealed cash transactions discovered in search assessments.
Regarding the two flats, the assessee submitted that registers and diaries seized provided details of "on-money" receipts for all flats in six buildings except these two, and provided business explanations for those two buyers (for example, supplier/contractor relationships), arguing that estimation without corroborating seized material was impermissible in block assessment.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Sadhuram Wadhwani, IT(SS) No. 10.Nag/1999 dated 13.11.2002 (Nagpur Bench, Tribunal)	Held that disallowance under Section 40A(3) in block assessment was outside the ambit of Chapter XIV-B.	The Tribunal noted this decision was followed by CIT(A) and treated it as a basis for holding Section 40A(3) disallowance not applicable in block/search assessment; the Tribunal concurred with this approach.
Ganesh Foundry and Casting Ltd. v. ITAT (2010) 328 ITR 202 (Pat.)	The opinion records this citation as relied upon by the ld. D.R.; the specific principle cited in the opinion is not elaborated.	Cited by the Revenue (ld. D.R.); the Tribunal's reasoning does not adopt or elaborate a rule from this case in the body of the opinion.
CIT v. Sai Metal Works, ITA No. 125 of 2004 & Others (judgment dt. 10.3.2011) (Pune & Har.)	Cited by the Revenue; the opinion does not state the precise legal principle drawn from this decision.	Cited by the Revenue (ld. D.R.); the Tribunal did not adopt it as the controlling view in its final disposition.
TCV Engineering Ltd. v. ACIT (2006) 205 CTR (Mad) 161	Cited by the assessee in support of the position that Section 40A(3) disallowance should not apply in block assessment (as relied on by ld. A.R.).	Referred to by the ld. A.R.; the Tribunal recorded reliance by the assessee on this decision but ultimately adopted a set of authorities favourable to the assessee, consistent with the approach in this line of cases.
Cargo Clearing Agency (Guj.) v. JCIT (2008) 218 CTR (Guj.) 541	Authority cited for the proposition that Chapter XIV-B (special procedure for assessment of search cases) overrides other provisions and Section 40A(3) disallowance should not be applied in block assessments.	The Tribunal expressly followed Cargo Clearing Agency and other favourable decisions and held that CIT(A) rightly deleted the Section 40A(3) disallowance.
CIT v. Banwarilal Bansidhar (1998) 148 CTR (Allha) 533	Cited by the ld. A.R.; the opinion records it among authorities relied on by the assessee.	Referred to by the assessee's counsel; the Tribunal noted the body of favourable authorities and adopted the view favourable to the assessee.
CIT v. S. Mohammad Dharubudeen (2008) 4 DTR (Mad.) 218	Cited by the ld. A.R.; the opinion records it among decisions relied upon by the assessee.	Referred to by the assessee; the Tribunal referenced the collective jurisprudence favourable to the assessee in determining the Section 40A(3) issue.
CIT v. Vegetable Products (1973) 88 ITR 192 (SC)	Supreme Court authority cited for the proposition that where different High Courts have differing views, the view favourable to the assessee may be followed.	The Tribunal invoked the cited Supreme Court authority to justify selecting and following the line of decisions favourable to the assessee where conflicting High Court views existed and no jurisdictional High Court decision controlled.
CIT v. Podar Cement Pvt. Ltd. (1997) 226 ITR 625 (SC)	Supreme Court authority cited in support of following a view favourable to the assessee in the presence of conflicting High Court decisions.	Used alongside Vegetable Products to justify adopting the view favourable to the assessee on Section 40A(3) applicability in block assessments.
Janata Tiles, 66 TTJ 695 (Pune)	Tribunal decision cited for the proposition that once transactions are unrecorded and undisclosed from regular books, further disallowance under Section 40A(3) may not be appropriate.	Referred to by CIT(A) and relied upon by the Tribunal as part of the body of authorities supporting deletion of Section 40A(3) disallowance in block assessments.
Sharma Associates, 55 ITD 171 (Pune)	Tribunal decision with similar view regarding non-application of Section 40A(3) to unrecorded/unrevealed transactions in block assessments.	Referred to and relied upon by the Tribunal as part of supporting precedent for deleting the Section 40A(3) disallowance.
Western India Bakers (P) Ltd. v. DCIT (2004) 84 TTJ (Mum) 223	Expressed the view that Chapter XIV-B is a special procedure for assessment of search cases and Section 158BA contains overriding provisions; supports non-application of Section 40A(3) in block assessments.	The Tribunal cited this decision for the proposition that Chapter XIV-B is a special, overriding code; it formed part of the basis for upholding deletion of Section 40A(3) disallowance.
Shri D.N. Kamani (70 ITD 77) (Pat) (TM)	Third Member Patna Bench decision where additions on "on-money" based on presumption were deleted.	The Tribunal relied on this authority (as followed by CIT(A)) in concluding that an addition based on estimation and presumption without corroborative seized material cannot be sustained in block assessment (issue relating to two flats).
Commissioner Of Income-Tax v. Dr. M.K.E. Memon (2001) 248 ITR 310 (Bom)	Explains differences between block assessment (search-based) and regular assessment and holds that AO must confine to documents/material found in search and avoid roving inquiries.	The Tribunal cited this High Court authority (as relied upon by CIT(A)) to support the principle that estimation or roving enquiries in block assessment are impermissible and to uphold deletion of the two-flat addition.

Court's Reasoning and Analysis

The Tribunal considered the facts, the seized documents, the orders of the authorities below and the authorities cited by the parties. The Tribunal's reasoning proceeded issue-by-issue as follows.

Grounds 1 & 2 (Allowance of Rs. 26,09,350 and evidentiary basis)

The Tribunal examined seized documents (Annexure A-2 and booking register A-9) which recorded specific cash payments and entries relating to the Pratiksha Project on plot No. 33. The seized material included entries naming Shri Narendra M. Thakkar against cash-payment entries aggregating to Rs. 26,09,350.
The assessee's position (supported by affidavits and seized material) was that Shri Jitendra M. Thakkar held a power of attorney over the larger land and negotiated the plots, while Shri Narendra M. Thakkar collected premium ("on-money"). The AO had accepted similar arrangements/payments for other plots and did not doubt that the Rs. 26,09,350 payment appeared in seized documents.
The Tribunal agreed with the CIT(A)'s conclusion that, once the payment for the plot was established from seized material and the nexus between the assessee and the Thakkar brothers regarding negotiation/collection was shown, there was no reason to disallow the expenditure merely because payments were made to the person who negotiated the plots. The Tribunal emphasized that cognizance must be given to the contents of all seized documents to determine undisclosed income and observed that the AO did not doubt the existence of the cash payments in the seized material.
Accordingly, the Tribunal upheld CIT(A)'s direction to allow deduction of Rs. 26,09,350 against "on-money" receipts for Pratiksha Project on plot No. 33 and rejected Grounds 1 & 2.

Grounds 3–5 (Section 40A(3) disallowance)

The AO had disallowed Rs. 24,15,160 under Section 40A(3) on the ground that certain cash payments exceeded Rs. 20,000 and were revealed only because of the search, therefore disallowable per Section 40A(3).
The CIT(A) deleted that disallowance, relying on a line of Tribunal decisions (including Sadhuram Wadhwani) holding that disallowance under Section 40A(3) is outside the scope of Chapter XIV-B (special procedure for assessment of search cases). The CIT(A) and subsequent submissions pointed to the special, overriding scheme of Chapter XIV-B (including Section 158BA) which governs assessment of undisclosed income discovered in searches.
The Tribunal reviewed the competing authorities: revenue-cited decisions in support of the AO's position were noted, and the assessee's set of authorities (including Cargo Clearing Agency and other Tribunal decisions) were considered. The Tribunal acknowledged differing views among various High Courts on the issue and that there was no binding decision of the jurisdictional High Court brought to its attention.
Applying the Supreme Court authorities (CIT v. Vegetable Products and CIT v. Podar Cement) that permit following a view favourable to the assessee where High Courts differ, the Tribunal adopted the line of authorities favourable to the assessee. The Tribunal agreed that Chapter XIV-B constitutes a special procedure with overriding clauses and therefore Section 40A(3) disallowance should not be applied in the block assessment context to further disallow transactions that are otherwise disclosed in seized documents.
The Tribunal upheld the deletion of the Section 40A(3) disallowance of Rs. 24,15,160 and rejected Grounds 3–5.

Ground 6 (Addition of Rs. 3,99,763 on two flats)

The AO made an estimated addition of Rs. 3,99,763 for "on-money" in respect of two flats where the registers/diaries did not show corresponding "on-money." The assessee explained business relationships for those two purchasers (supplier/contractor) and said the seized records otherwise reflected "on-money" receipts from purchasers for the other flats across six projects.
The CIT(A) deleted the AO's estimation-based addition, holding that in block assessments the AO must rely on seized records and cannot make additions based on presumption or surmise where there is no corroborative seized material. The Tribunal endorsed this approach, referring to the Third Member Patna Bench decision in Shri D.N. Kamani and to the Bombay High Court decision in Commissioner of Income-Tax v. Dr. M.K.E. Memon which emphasizes the limited scope of inquiry in block assessments and forbids roving enquiries.
Consequently, the Tribunal found no reason to interfere with CIT(A)'s deletion of the estimated addition and rejected Ground 6.

Holding and Implications

Holding: The appeal by the revenue is DISMISSED.

Court's specific conclusions:

Grounds 1 & 2 (allowance of Rs. 26,09,350 and existence of payment on seized documents): rejected; the Tribunal upheld CIT(A)'s direction to allow the deduction of Rs. 26,09,350 against the "on-money" receipts for the Pratiksha Project on plot No. 33.
Grounds 3–5 (deletion of Section 40A(3) disallowance of Rs. 24,15,160 and related legal questions): rejected; the Tribunal upheld the deletion, following authorities that treat Section 40A(3) disallowance as outside the special procedure of Chapter XIV-B in the block assessment context.
Ground 6 (addition of Rs. 3,99,763 estimated on two flats): rejected; the Tribunal upheld CIT(A)'s deletion of the estimated addition for lack of corroborative seized material and impermissibility of presumption/estimation in block assessment.

Implications:

The direct effect is that the assessee's claimed deduction of Rs. 26,09,350 is allowed against "on-money" receipts for the Pratiksha Project, the Section 40A(3) disallowance of Rs. 24,15,160 is deleted, and the estimated addition of Rs. 3,99,763 is deleted — benefitting the assessee in the block assessment under challenge.
The Tribunal followed existing lines of authority favourable to the assessee on the applicability of Section 40A(3) in the block/search assessment context; the opinion does not purport to lay down a new binding precedent of the Tribunal or High Court, but it applies and follows precedents favourable to the assessee where conflicting judicial views exist.

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Asstt. Commissioner Of Income Tax Central Circle-3, Nashik v. M/S Rushiraj Builders & Developers 1, Siddhi Part, New Pandit Colony, Old Corporation Road, Nashik .

I.C Sudhir, J.M:— The revenue has questioned first appellate order on the following grounds:

1) That, on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in directing to allow a deduction of Rs. 26,09,350/-, stated to be cash payment made to Shri Narendra Thakkar in respect of premium towards plot No. 33 for_Pratiksha Building, against the “on money” receipts declared on “Pratiksha Project” on plot No. 33.

2) That, on the facts and in the circumstance of the case, the learned CIT (Appeals) erred in holding that the existence of cash payment of Rs. 26,09,350/- in respect of “Pratiksha Project” on plot No. 33 is evident from the seized document.

3) That, on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in deleting the disallowance of Rs. 24,15,160/- made u/s. 40A(3) of the I.T Act 1961 by the Assessing officer.

4) That, the learned CIT (Appeals) erred in law in holding that disallowance cannot be constituted as undisclosed income within the definition of Sec. 158B of the I.T Act.

5) That, the learned CIT (Appeals) erred in law in holding that disallowance of u/s. 40A(3) in block assessment was outside the ambit of chapter XIV -B of the I.T Act ignoring provision of Sec. 158BH of Chapter XIV-B

6) That, on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in deleting the addition of Rs. 3,99,763/- made by the Assessing Officer in sale of Flat No. 10 of “Pratisha Apartment” and Flat No. 10 of “Pranav Apartment”. “.

2. We have heard and considered the arguments advanced by the parties and have gone through the orders of the authorities below, material available on record and the decisions relied upon.

Ground Nos. 1 & 2

3. The relevant facts are that the assessee firm engaged in the business of builders was subjected to search operation u/s. 132 of the Act on 25 March 2003 in residential as well as business premises of its partners Mr. Yogeshchandra Pravinchandra Trivedi and Shri. Jairaj Manharsingh Jhala. Certain documents were found and seized. In response to notice issued u/s. 158BC, the assessee filed its block return of income declaring undisclosed income of Rs. 50 lakh. During the assessment proceedings, it was noticed from the seized material that assessee had constructed the building ‘Pratiksha Apartment’ on plot No. 33 of Survey No. 705/2/1 under the development agreement with Shri Paraji Abaji Karanjkar and Rajesh Hari Nawani for the consideration of Rs. 5,84,255/-. After the construction of the building ‘Pratiksha Apartment’, the conveyance deed was made by Shri Chandulal Khemani as a power of attorney holder of Shri. Paraji Abaji Karanjkar and Shri Rajesh Hari Nawani in favour of the society of the flat owners of Pratiksha Apartment. The total piece of land bearing Survey No. 705/2/1 was owned by Maharashtra Prabhodhani Seva Mandal and Maharashtra Prabhodhani Seva Mandal had given power of attorney dated 10.6.1994 in respect of entire land in favour of Shri. Jitendra M. Thakker. The Plot No. 43 of the said land was sold by Shri. Jitendra M. Thakker as a power of attorney of Maharashtra Seva Mandal as per sale deed dated 8.7.1994 to Shri Paraji Abaji Karanjkar and Rajesh Hari Nawani. Thus as on 19.7.1997, the date on which, the assessee firm had taken the plot No. 33 for development and construction of Pratikshah Apartment building, the owners of the plot were Shri Paraji Abaji Karanjkar and Rajesh Hari Nawani. These persons were absolute owners of plot No. 33 as on 19.7.1997 and Shri Jitendra M. Thakker was not having any right or title or interest in the plot No. 33. The assessee firm had also taken up other plots of land from survey No. 705/2/1 for development and construction of buildings from Shri Jitendra M. Thakkar as a power of attorney holder of Maharashtra Prabhodhan Seva Manal. The development agreements with the assessee firm in respect of such other plots of survey No. 705/2/1 were signed by Shri Jitendra M. Thakkar and the conveyance deed in respect of the said other plots in favour of the societies of the buildings constructed thereon by the assessee firm were also signed by Shri. Jitendra M. Thakkar as a power of attorney holder. But the development agreement 10-07-1997 as well as the conveyance deed dt. 10-11-1998 in respect of plot No. 33 were not signed by Shri Jitendra M. Thakkar as he had No. concern or right or interest in respect of plot No. 33.

3.1 The seized document marked No. A-2 showed that the assessee firm had made cash payments in respect of several plots taken up by the assessee firm for development and construction and such cash payments were found to be over and above the consideration recorded in the agreement in respect of those plots. Against the entries for such cash payments the name of Shri Narendra M. Thakkar, the brother of Shri Jitendra M. Thakkar, was written. The assessee firm had filed affidavits during the course of assessment proceedings stating that since Shri Jitendra M. Thakkar was hlding the power of attorney in respect of the land bearing survey No. 705/2/1 owned by Maharashtra Prabhodhan Seva Mandal, the negotiations for the plots of the said land were made with Shri Narendra M. Thakkar and the cash payments were made to him as on money consideration for the said plots. Hence the assessee had argued that such cash payments appearing in the seized documents should be allowed as expenditure in the computation of undisclosed income from the unrecorded business transactions appearing in the seized documents.

3.2 From the seized document marked Annexure A-2, the assessee claimed that the following cash payments aggregating to Rs. 26,09,350/- were made to Shri Narendra M. Thakkar, the brother of Shri Jitendra M. Thakkar or to Shri Bhanubhai Patel, his messenger in respect of the plot No. 33 on which Pratiksha Apartment is constructed.

Sr. No. Date Amount Corresponding entries in the seized material 1 31-01-1997 5,00,000/- A-2, page No. 54 2 05-02-1997 4,00,000/- A-2, page No. 55 3 05-02-1997 1,00,000/- A-2, page No. 55 4 11-02-1997 11,000/- A-2, page No. 56 5 18-04-1997 2,00,000/- A-2, page No. 64 6 21-05-1997 1,00,000/- A-2, page No. 70 7 02-06-1997 2,00,000/- A-2, page No. 73 8 02-07-1997 2,00,000/- A-2, page No. 79 9 02-07-1977 1,00,000/- A-2, page No. 79 10 09-07-1997 3,00,000/- A-2, page No. 81 11 14-07-1997 3,00,000/- A-2, page No. 82 12 11-08-1997 1,98,350/- A-2, page No. 82 Total 26,09,350/-

3.3 However, in the block assessment order the AO had not allowed the cash payments of Rs. 26,09,350/- as expenditure in respect of Pratiksha Apartment building as discussed in para No. 10.9.3 of the assessment order because Shri Jitendra M. Thakkar or Shri Narendra M. Thakkar was not holding any right, title, interest in respect of plot No. 33 as on 19-07-1997 when the said plot was taken up by the assessee for development in construction.

3.4 However the CIT(A) has allowed the amount of Rs. 26,09,350/- as expenditure holding that Shri Jitendra M. Thakkar was having the power of attorney and that the assessee firm was negotiating with Shri Narendra M. Thakkar in respect of the said plot. The CIT(A) also referred to the entry on page No. 14 of seized booking register A-9 where the total cost of the said plot is mentioned at Rs. 31,93,600/- and where the deduction of agreement consideration of Rs. 5,84,255/- from Rs. 31,93,600/- is shown and the balance of Rs. 26,09,345/- with a remark cash paid is written. The CIT(A) relied upon the argument made by the assessee that the amount of Rs. 26,09,345/- was paid to Shri. Paraji Abaji Karanjkar through Shri. Narendra M. Thhakkar. This argument was relied by CIT(A) without they being any confirmation of Shri Paraji Abaji Karanjkar in the seized document or without any confirmation of Shri Paraji Abaji Karanjkar in the seized document or without any confirmation of Shri Paraji Abaji Karanjkar filed by the assessee.

4. In support of the grounds, the ld. D.R has basically placed reliance on the assessment order. The Ld. D.R on the other hand tried to justify the first appellate order. The ld. A.R reiterated the submissions made before the authroties below.

5. Considering the submissions, we found that the issue involved is as to whether these specific payments made towards plot No. 33 as evident from Annexure A2 seized during the course of search should not be allowed to be set off all against “on-money” receipt on sale of flat in respect of “Pratikshah project” on plot No. 33 as evident on page Nos. 79 & 83 of Annexure A2. The A.O has taken cognizance of the “on-money” receipts and the corresponding entry of “on-money” payment has been ignored by him on the excuse that the name of the seller does not appear on it. The contention of the assessee remained that Shri. Jitendra M. Thakker, the brother of Shri Narendra M. Thakker was holding power of attorney for the entire land admeasuring 67,100/- sq. mtr. and Survey No. 705/2/1 from Maharashtra Prabodhan Seva Mandal. Shri P.A Karanjkar and Shri Rajesh Hari Nawani on purchases of land on 8.7.1994 through Shri. Jitendra Thakker as general power of attorney holder which was executed on 18/9/1996 by confirmation deed with the said party. Thus it was evident that even if the plot belonging to Shri Paraji Abaji Karanjkar & Others was with Shri Jitendra M. Thakker as power of attorney holder vide deed dated 10/6/1994. Shri Chandulal Khemani and Prasad Developers are confirming party to the said deed. Thus, it was Shri Jitendra M. Thakker who was negotiating for development of the plot and his brother Narendra M. Thakker used to collect the premium from the Developers. It was also submitted that almost all the other flats where the assessee has constructed buildings were also negotiated through Shri. Jitendra M. Thakker and premium was collected by his brother Shri. Narendra M. Thakker which was also part of the seized paper and duly allowed by the A.O These submissions of the assessee has not been rebutted before the Tribunal nor the revenue has rebutted this material fact before us that A.O did not doubt that payment amounting to Rs. 26,09,350/0 was made in respect of the plot No. 33 as evident in seized document marked as Annexure A2. We thus fully concur with the finding of the ld CIT(A) that once the payment for the said plot has been established, there is No. reason to disallow the said expenditure merely because the payments were made to the person who was negotiating in respect of all the plots. We also do not find infirmity in the observation of the ld CIT(A) made by him on the basis of submission of the assessee and documents seized that the nexus of such cash payment made to Shri Narendra M. Thakker, brother of Shri Jitendra M. Thakker in respect of plot No. 33 stands established. We thus find that when the nexus of transactions between the assessee in one hand and Shri Jitendra M. Thakker and his brother Shri. Narendra M. Thakker on the other hand to all these projects including “Pratikshah project” have been established, there is No. reason as to why this specific payment towards such plot No. 33 as Annexure A2 should not be allowed against the “on-money receipt” on sale of flats. It is an established proposition of law that cognizance to be given to the contents of all the seized documents to determine undisclosed income. The existence of cash payments of Rs. 26,09,350/- in respect of “Pratikshah project” on plot No. 33 is clearly evident from the sized document Annexure A2 and A9 which has not been doubted by the A.O Under these circumstances, we are of the view that Ld CIT(A) has rightly come to the conclusion that the said expenses pertaining to the plot No. 33 have to be necessarily allowed against the total “on-money” receipts for “Pratikshah project” on plot No. 33. We thus uphold the action of the Ld CIT(A) in directing the A.O to allow the deduction of Rs. 26,09,350/- against the “on-money” receipts declared on “Pratikshah project” on plot No. 33 at Nashik. The Grounds 1 & 2 involving the issue are thus rejected.

Ground No. 3 to 5

6. The relevant facts are that there were unrecorded cash expenses of Rs. 1,63,40,920/- and un-recorded cash receipts of Rs. 2,33,51,150/- as per seized records and after setting off other miscellaneous expenses, the balance amount of Rs. 50 lakh was offered as undisclosed income in the block return. The A.O, out of said cash expenses, found that the cash payment of Rs. 1,20,75,800/- exceeded Rs. 20,000/- and accordingly disallowed 20% of the same u/s. 40A(3) and the balance cash of Rs. 1,39,25,760/- were allowed to be set off against cash receipt. The A.O invoked provisions u/s. 40A(3) mainly on the basis that the cash expenses would not have been revealed to the Department but for the search action u/s. 132(1) and therefore, the said cash expenses in contravention to the provisions of Sec. 40A(3) are disallowable. He further opined that prior to amendment to Section 158 BB by Finance Act 2002, the undisclosed income was to be computed as per provisions of Chapter IV which included provision of Sec. 40A(3). He was therefore of the view that there is No. exceptions provided in Chapter XIV-B in respect of application of Sec. 40A(3) and hence disallowed the cash expenses exceeding Rs. 20,000/- u/s. 40A(3) amounting to Rs. 24,15,160/-. The Ld CIT(A) has deleted the disallowance after discussing several decisions on the issue relied upon before him. The Ld CIT(A) has followed the binding decision of Nagpur Bench of the Tribunal in the case of Sadhuram Wadhwani, IT(SS) No. 10.Nag/1999 dated 13.11.2002 wherein the Tribunal has held that the disallowance u/s. 40A(3) in the block assessment was outside the ambit of Chapter XIV B of the Act.

7. In support of the ground, the ld. D.R has placed reliance on the assessment order and has also cited following decisions:

1) Ganesh Foundry and casting Ltd. v. ITAT (2010) 328 ITR 202 (Pat.)

2) CIT v. Sai Metal Works, ITA No. 125 of 2004 & Others, judgment dt. 10.3.2011 (Pun. & Har.).

8. The ld. A.R, on the other hand, tried to justify the first appellate order on the issue. He placed reliance on the decisions cited before the authorities below and also on the decision of Hon'ble Madras High Court in the case of TCV Engineering Ltd. v. ACIT (2006) 205 CTR (Mad) 161. He submitted that the decisions relied upon by the Ld. D.R having distinguishable facts are not applicable in the present case. He also placed reliance on the following decisions:

1. Cargo Clearing Agency (Guj.) v. JCIT (2008) 218 CTR (Guj.) 541

2. CIT v. Banwarilal Bansidhar (1998) 148 CTR (Allha) 533

3. CIT v. S. Mohammab Dharubudeen (2008) 4 DTR (Mad.) 218.

He submitted that in those decisions relied upon by the Ld. D.R all ingenuine payments were made whereas in the present case, the A.O has accepted cash receipt and cash expenses as genuine transactions which the assessee had actually entered during the block period in question. He submitted further that there is No. binding decision of the Hon'ble jurisdictional High Court on the issue and in case different views have been expressed by different High Courts on an issue, that fabourable to the assessee will be followed. In this regard, he placed reliance on the decisions of Hon'ble Supreme Court in the cases of CIT v. Vegetable Products (1973) 88 ITR 192 (SC) and CIT v. Podar Cement Pvt. Ltd. (1997) 226 ITR 625 (SC).

9. Considering the above submissions, we find that the ld CIT(A) have decided the issue in favour of the assessee following the decision of Nagpur Bench of the Tribunal in the case of Sadhuram Wadhwani (Supra) holding that the disallowance u/s. 40A(3) in the block assessment was outside the ambit of chapter XIV B of the I.T Act. The Ld CIT(A) has discussed several decisions relied upon before him including the decisions of Pune Bench of the Tribunal in the case of Janata Tiles, 66 TTJ 695 (Pune) and Sharma Associates, 55 ITD 171 (Pune) holding that once the transactions are unrecorded and undisclosed from the regular books of account, there can not be further disallowance u/s. 40A(3) of the Act. Reliance has also been placed on the decision of Mumbai Bench of the Tribunal in the case of Western India Bakers (P) Ltd. v. DCIT (2004) 84 TTJ (Mum) 223 expressing the similar view with this observation that heading of Chapter XIV B is special procedure for assessment of search cases. Section 158 BA deals assessment of undisclosed income as a result of search. This Section opens with a non-obstinate clause and this enacts provisions of overriding nature so as to prevail over any other provisions of the Act. The assessed undisclosed income is assessed at the higher rate of 60% U/s. 113 of the Act, observed the Tribunal. We, however, find that different views have been expressed by different High Courts on the issue and No. decision of Hon'ble jurisdictional High Court on the issue has been brought to our notice by the parties. Under these circumstances, in view of the decisions of Hon'ble Supreme Court in the cases of CIT v. Vegitable Products (Supra) and CIT v. Podar Cement Pvt. Ltd. (Supra), we adopt the judgment on the issue which is favourable to the assessee. We thus respectfully following the decision of Cargo Clearing Agency (Guj.) v. JCIT (Supra) & Others relied upon by the Ld. A.R hold that the Ld CIT(A) has rightly deleted the disallowance u/s. 40A(3) of the Act made by the A.O with direction to delete the same involving amount of Rs. 24,15,160/-. The same is upheld. Ground No. 3 to 5 involving this issue are thus rejected.

Ground No. 6

10. The relevant facts are that A.O estimated Rs. 3,99,763/- on account of “on-money” receipt in respect of 2 flats sold by the assessee. The A.O did not accept the explanation of the assessee that it had constructed 6 buildings and in respect of the facts in the six buildings, he had taken ‘on money’ except in the case of two flats. It was explained by the assessee that the registers and diaries found gives details of ‘onmoney’ received from all the flat purchasers of the six buildings except for the two flats. It was submitted that the assessee did not have any ‘on-money’ in the case of Shri Ashok B. Salian and Shri Yogesh Dharaskar to whom these flats were sold. The reason shown was that Shri. Ashok B. Salian was a regular supplier of bricks, sand, cement etc. and thus with him there was business relation and thus the flat was sold at the agreement value itself. Similarly in respect of flat sold to Shri. Yogesh Dharaskar, it was explained that he was painting contractor and with him also business relations were there and the flat was sold to him at the agreement value itself. After discussing the issue in detail, the Ld CIT(A) has deleted the addition merely on the basis that in block assessment, No. addition can be made on estimation and without support of any seized material in corroboration.

11. In support of the ground, the ld. D.R has basically placed reliance on the assessment order whereas the ld. A.R has relied upon the first appellate order on the issue.

12. Having gone through the orders of the authorities below on the issue, we fully concur with the finding of the Ld CIT(A) supported by the decisions relied upon before him that addiion made by the A.O based on presumption and surmises despite non-existence of any incriminating seized documents is not in conformity with the provisions of Sec. 158BB of the Act. We find that in the present case, it is an admitted fact that the assessee had recorded all the transactions of “on-money” receipts of Rs. 2.33 Crores in the seized records from all the flats in the six projects, then there was No. reason for the assessee not to enter into “on-money” receipts in respect of the two flats if it had actually received the same. The Ld CIT(A) has followed the decision of Third Member of the Patna Bench of the Tribunal in the case of Shri D.N Kamani (70 ITD 77) (Pat) (TM) where addition on “on-money” on sale of flats based on presumption was deleted. The Hon'ble Bombay High Court in the case of Commissioner Of Income-Tax v. Dr. M.K.E Memon (2001) 248 ITR 310 (Bom) cited before the Ld CIT(A), has been pleased to explain the provisions of block assessment and regular assessment and has concluded that the provisions of block assessment are separate and different from regular assessment and the A.O must not make roving enquiries while making block assessment but only consider the documents and material found in the course of search action. Under these circumstances, we do not find reason to interfere with the first appellate order on this issue. The same is upheld. The ground No. 6 is accordingly rejected.

13. In result, appeal is dismissed.

Asstt. Commissioner ... v. M/S Rushiraj Builder...