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Commissioner of Income-tax -I v. Jayaben Ratilal Sorathia
Structured Summary of the Opinion (M.R. Shah, J.)
Factual and Procedural Background
The dispute relates to assessment year (A.Y.) 2005-06. A regular assessment under section 143(3) of the Income Tax Act was completed for that year. A search under section 132 was conducted at the premises of the assessee's son, Mr. Sanjay R. Sorathiya, on 11/10/2006. During the search a diary containing notations about sale of plots in the "Madhuvan Green Vilas Project" was found. On the basis of that diary the assessee made a disclosure of Rs. 65,00,000, which related to land-sale transactions in A.Y. 2006-07. The assessee also reported profit on sale of plots amounting to Rs. 16,29,612 in A.Y. 2007-08.
On the basis of the disclosure and search, the Assessing Officer (AO) reopened the assessment for A.Y. 2005-06 (notice under section 153C dated 14/10/2007) and, applying the same ratio/modus operandi as in A.Y. 2006-07 and 2007-08, made an estimated addition of Rs. 36,94,955 for undisclosed on-money on sale of plots (6,426.01 sq. m. at Rs.575 per sq. m.).
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who partly allowed the appeal and deleted the addition of Rs. 36,94,955. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the Revenue's appeal, confirming the CIT(A) order. The Revenue then preferred the present appeal to the High Court raising three proposed questions of law.
Legal Issues Presented
- Whether ITAT was justified in holding that no addition can be made for on-money payment in respect of the year under consideration u/s. 153A of the Act just on the ground that no evidence in regard of on-money payment for sale of plot in year under consideration was found, despite the fact that evidences of on-money were found, seized & declared by assessee for same project although for other years?
- Whether ITAT was justified in stating that decision of Hon'ble Andhra Pradesh High Court in the case of Mr. Gopal Lal Bhadruka Vs. DCIT was not applicable in this case, just because evidence found was of immediate succeeding year?
- Whether ITAT was justified in interpreting decision of Hon'ble Andhra Pradesh High Court in case of Mr. Gopal Lal Bhadruka Vs. DCIT in a way that AO can make estimated addition for transaction on 01/04/2005, but not for 31/3/2005, despite the fact that both the transactions are for same project and in real estate project is more important than year?
Arguments of the Parties
Appellant's (Revenue's) Arguments
- Mr. Pranav G. Desai, learned counsel for the appellant (Revenue), submitted that the ITAT failed to appreciate provisions of law, particularly sections 153A and 153C, which permit reopening and reassessment for the six preceding years. The AO was justified in reopening A.Y. 2005-06.
- It was submitted that applying the same ratio/modus operandi as in A.Y. 2006-07 and 2007-08, the AO correctly added undisclosed income of Rs. 36,94,955 for the plots sold in A.Y. 2005-06 (at Rs.575 per sq. m.).
- The Revenue relied upon the decision of the Andhra Pradesh High Court in Gopal Lal Bhadruka v. DCIT [2012] 346 ITR 106 / 27 taxmann.com 167 (AP), and submitted that the ITAT materially erred in distinguishing that decision.
Tribunal / CIT(A)'s Position (as reflected in the opinion)
- The CIT(A) deleted the AO's addition because the regular assessment for A.Y. 2005-06 was framed under section 143(3) and there was no incriminating material seized specifically pertaining to A.Y. 2005-06; the books of account did not show defects and the AO based its addition solely on the disclosure for A.Y. 2006-07.
- The ITAT affirmed the CIT(A), holding that evidence of receipt of on-money related to subsequent year(s) (2006-07 and 2007-08) and, in absence of any incriminating or corroborative material for the preceding year (2005-06), an addition for on-money in A.Y. 2005-06 could not be sustained. The ITAT noted that land prices change over time and that the project’s later years could command higher prices than the first year, so subsequent-year receipts cannot automatically be attributed to the earlier year without direct or corroborating evidence.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Gopal Lal Bhadruka v. DCIT [2012] 346 ITR 106 / 27 taxmann.com 167 (Andhra Pradesh High Court) | The Revenue relied upon this decision in support of reopening/estimating additions on the basis of evidence found during search. (The opinion records reliance by Revenue on this case.) | The Court distinguished this precedent on facts: in Gopal Lal Bhadruka the land-sale transaction was in the same assessment year in which the search was carried out, whereas in the present case the seized evidence related to subsequent years (2006-07 and 2007-08). On that factual distinction the Andhra Pradesh decision was held not applicable to the present facts. |
Court's Reasoning and Analysis
The court analyzed the matter by comparing the factual matrix for A.Y. 2005-06 with the material seized during the search and with the principles governing reopening under sections 153A and 153C.
Key points of the court's analysis (as recorded in the opinion):
- The search took place at the assessee's son's premises and a diary was found containing notations about sale transactions; on that basis the assessee disclosed Rs. 65 Lacs relating to A.Y. 2006-07 and reported certain profits in A.Y. 2007-08.
- For A.Y. 2005-06, the assessment had been completed under section 143(3) and no incriminating material specifically pertaining to A.Y. 2005-06 was found during the search; the AO did not detect defects in the assessee’s books of account for that year.
- The AO applied the same ratio/modus operandi as in later years (2006-07 and 2007-08) to estimate undisclosed on-money for A.Y. 2005-06, arriving at an addition of Rs. 36,94,955. The CIT(A) deleted that addition, and the ITAT affirmed the deletion.
- The ITAT's reasoning (adopted by the court) was that evidence of on-money receipt for subsequent year(s) cannot, without direct incriminating material or corroboration, be a valid basis to conclude that on-money was received in the earlier year. The tribunal emphasized that land prices change (generally rising) and that the project’s later years might command higher prices; the first year of the project could have lower declared prices. Thus, extrapolating subsequent-year on-money to the prior year without corroboration is unjustified.
- As to the precedent relied upon by the Revenue (Gopal Lal Bhadruka), the court noted that in that case the sale transaction was in the same year as the search; therefore the factual matrix differed and the Andhra Pradesh High Court decision was not applicable to the present case where the evidence related to subsequent years.
In short, the court accepted the ITAT’s factual and legal assessment that, in absence of incriminating/corroborating material for A.Y. 2005-06, the AO's estimated addition based only on later-year disclosures could not be sustained.
Holding and Implications
DISMISSED
Direct effect: The High Court dismissed the Revenue's appeal, thereby upholding the ITAT's order which confirmed the CIT(A)'s deletion of the addition of Rs. 36,94,955 for A.Y. 2005-06. The consequence for the parties is that the addition made by the AO for alleged on-money in A.Y. 2005-06 stands deleted.
Broader implications: The opinion emphasizes the necessity of incriminating or corroborating material specifically relating to the assessment year in question before applying disclosures or ratios from subsequent years; the court distinguished the Andhra Pradesh High Court decision relied upon by the Revenue on factual grounds. The opinion records that "no substantial question of law" arises from the appeal; it does not purport to lay down a new legal principle beyond the application of existing procedural provisions to these facts.
End of summary.
ORDER
M.R. Shah, J. - Present appeal has been preferred by the appellant against the impugned judgement and order passed by the Income Tax Appellate Tribunal by which the appellate tribunal has dismissed the said appeal preferred by the revenue confirming the order passed by the CIT(A) dtd. 21/10/2009 for A.Y. 2005-06 on the following proposed questions of law :
2. Facts leading to the present appeal in nutshell are as under :
2.1 The dispute is with respect of the A.Y. 2005-06. That the Assessing Officer done regular assessment under section 143 under section 143(3) of the Income Tax Act (hereinafter referred to as "the Act") with respect to A.Y. 2005-06.
2.2 It appears that a search action under section 132 of the Act was carried out at the premises of the son of the assessee - Mr. Sanjay R. Sorathiya on 11/10/2006. During the course of search, various documents pertaining to the assessee were found. Therefore, a notice under section 153C of the Act dtd. 14/10/20087 was issued and served upon the assessee. It also appears that during the course of search, one diary containing noting in regard to the sale of the plots of land in Madhuvan Green Vilas Project on Revenue Survey No.107 were found. On the basis of the said diary, the assessee made disclosure of Rs.65 Lacs. The said disclosure of Rs.65 Lacs pertains to land selling transactions of A.Y. 2006-07. The assessee also sold some plots of land in A.Y. 2007-08. Accordingly, profit of sale plots of land amounting to Rs.16,29,612/- was shown in the return of income for A.Y. 2007-08. It appears that thereafter on the basis of search carried out and the disclosure of Rs.65 Lacs pertaining to the land selling transactions in the A.Y. 2006-07 and 2007-08, the Assessing Officer reopened assessment with respect to A.Y. 2005-06 with respect to sale of plots of land admeasuring 6426.01 sold in A.Y. 2005-06. As the Assessing Officer was of the opinion that in the return of A.Y.2005-06, the assessee had not shown any profit as done in A.Y. 2006-07 and 2007-08, a show cause notice was issued and served upon the assessee to show cause why same ratio and ratio of profit should not be applied to the sales which took place in the year 2005-06. That the Assessing Officer applying same ratio and ratio modus-operandi, total undisclosed on sale on plots of land admeasuring 6426.01 sq.mtrs. sold during the year under consideration, worked out to Rs.36,94,955/- being extra sale profits received on sale of plots of the land at the rate of Rs.575/- per sq.mtrs. as done in the A.Y. 2006-07 and 2007-08 and made addition of Rs.36,94,955/- in the total income of the assessee.
2.3 Being aggrieved by the order of assessment in making addition of Rs.36,94,955/- in the total income of the assessee with respect to the A.Y. 2005-06, appellant preferred appeal before the CIT(A) and by speaking and well reasoned order, the CIT(A) partly allowed the said appeal and deleting addition of Rs.36,94,955/- in the total income of the assessee with respect to the A.Y. 2005-06.
2.4 Feeling aggrieved by the order passed by the CIT(A) in deleting addition of Rs.36,94,955/- made by the Assessing Officer, the revenue preferred further appeal before the ITAT and the ITAT by the impugned judgement and order has dismissed the said appeal.
2.5 Feeling aggrieved by the impugned judgement and order passed by the ITAT in dismissing the appeal and confirming the order passed by the CIT(A) in deleting addition of Rs.36,94,955/-, which was made by the Assessing Officer, the revenue has preferred present appeal with aforesaid proposed questions of law.
3. Mr.Pranav G. Desai, learned counsel appearing on behalf of the appellant has vehemently submitted that the tribunal has not properly appreciated the provisions of law more particularly section 153A of the Act, which permits the Assessing Officer to reopen/reassess the return of six preceding years. It is submitted that therefore, considering section 153A and 153C of the Act, the Assessing Officer was justified in reopening the assessment with respect to A.Y. 2005-06 and considering the same ratio and ratio modus- operandi with respect to A.Y.2006-07 and 2007-08 rightly added undisclosed income on the sale of plots of land admeasuring 6426.10 sq.mtrs. sold during the year under consideration being extra sale profits received on sale of plots of land at the rate of Rs.575/- per sq.mtrs. as done in the A.Y. 2006-07 and 2007-08.
3.1 Mr. Pranav G. Desai, learned counsel appearing on behalf of the revenue has further submitted that the tribunal has not properly appreciated the decision of Andhra Pradesh High Court on the issue in the case of 1. Gopal Lal Bhadruka v. 2. Avadesh Bhadruka [2012] 346 ITR 106/27 taxmann.com 167 (AP) . It is submitted that the tribunal has materially erred in distinguishing the facts of case before the Andhra Pradesh High Court in the aforesaid decision.
4. At the outset it is required to be noted that on the basis of search carried out in the premises of the son of the assessee and diary seized and on the basis of noting in the said diary, the assessee made disclosure of Rs.65 Lacs for the A.Y. 2006-07 with respect to the sale transactions which took place during the A.Y. 2006-07 and applying same ratio and ratio relating to A.Y. 2006-07 and A.Y. 2007-08, the Assessing Officer determined the income for the A.Y. 2005-06 and considering the fact that the regular assessment was framed under section 143(3) and there was no any seized material with respect to A.Y. 2005-06, considering the aforesaid fact and observing that no incriminating material was found with respect to A.Y. 2005-06 and during the assessment, the Assessing Officer did not find any defect in the books of account maintained by the assessee and considering the fact that even no any material was found during the search relating to assessment year in question, CIT(A) directed to delete addition of Rs.36,94,955/- by observing that the Assessing Officer was not justified in making addition of Rs.36,94,955/-solely on the basis of the disclosure of Rs.65 Lacs with respect to transactions which took place in the year 2006-07 and the order passed by the CIT(A) is rightly confirmed by the Tribunal
4.1 While confirming the order passed by the CIT(A), the ITA(T) has observed as under :
"…… In the present case, although the project is same for which some plots of land were sold in the present year but evidence found regarding the receipt of the on-money is in respect of subsequent year i.e. 2006-07 although, the project is same. Now the question is whether the receipt of on-money is subsequent year can be a valid basis to hold that on-money was also received in the present year in absence of any incriminating materials having been found in the course of search and also in absence of any corroborating material have been brought on record by AO in support of his contention that similar on-money was received by the assessee in the present year also. We have to keep in mind the prices of land keep on changing were generally rising. Hence, if extra prices were commanded by the assessee in the AY 2006-07 and 2007-08, it cannot be valid basis to say that the same prices was commanded by assessee in AY 2005-06 also without any incriminating material or corroborating material. This should also be kept in mind that the present year is the first year of the project and subsequent years are second and third year of the project, the project commands extra price in the market and therefore, it may be possible that in the first year i.e. in the present year, the assessee sold some of the plots on a lower prices as declared by the assessee commanded extra prices and received same in the form of on-money. Hence, in our considered opinion, on the basis of evidences regarding on-money receipt on the subsequent years without any direct material or corroborating material in support of receipt of on-money in a preceding year i.e. in the present year, addition made by AO cannot be sustained."
4.2 Now so far as the reliance placed upon the decision of the Andhra Pradesh High Court in the case of Gopal Lal Bhadruka (supra) is concerned, it is required to be noted that in the case before the Andhra Pradesh High Court, the land sale transaction was in the very assessment year in which the search was carried out. It is true and it cannot be disputed that considering section 153A of the Act, Assessing Officer can reopen and/or reassess the return with respect to six preceding years. However, there must be some incriminating material available with the assessing officer with respect to the sale transactions in the particular assessment year such as in the present case 2005-2006. Under the circumstances, on facts, the decision of the Andhra Pradesh High Court shall not be applicable to the facts of the present case.
5. In view of the above and the reasoning given by the tribunal reproduced hereinabove, we do not see any reason to interfere with the impugned judgement and order passed by the ITAT as no substantial question of law much less substantial question of law arise in the present appeal. Hence, present appeal deserves to be dismissed and is accordingly dismissed.
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