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Court Upholds Partial Relief for Assessee in Income Tax Dispute

This case involves a dispute between an individual assessee (taxpayer) and the Income Tax Department. The assessee, who was a land dealer and broker, was assessed under Section 158BD (of Income Tax Act, 1961) for the block period. The Assessing Officer made several additions to the assessee's income, which the assessee challenged before the Income Tax Tribunal. The Tribunal allowed partial relief to the assessee by deleting some of the additions made by the Assessing Officer. Both the Revenue (Income Tax Department) and the assessee filed reference applications against the Tribunal's order, which were ultimately disposed of by the Tribunal.

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Case Name:

Commissioner of Income Tax Vs Manojbhai Bhupatrai Vadodaria (High Court of Gujarat)

R/Income Tax Reference No.1 of 2001

Date: 21st August 2020

Key Takeaways:

1. The court examined the correctness of the Tribunal's findings on the set-off of unaccounted cash payments against unaccounted cash receipts, the allowability of claimed business losses, and the additions made in respect of two land deals.

2. The court found the Tribunal's findings on the land deals to be perverse, as the Tribunal had not properly considered the evidence on record and had drawn inferences based on irrelevant factors.

3. The case highlights the importance of properly discharging the burden of proof in income tax disputes, and the court's role in ensuring that the Tribunal's findings are based on a proper appreciation of the evidence.

Issue:

Whether the Tribunal's findings on the set-off of unaccounted cash payments against unaccounted cash receipts, the allowability of claimed business losses, and the additions made in respect of two land deals were correct.

Facts:

- The assessee, an individual and dealer-cum-broker in lands, was assessed under Section 158BD (of Income Tax Act, 1961) based on seized documents and statements recorded during a search and seizure operation.

- The Assessing Officer completed the assessment for the block period, determining the assessee's total income as Rs. 34,63,47,179.

- The assessee appealed against the assessment order before the Income Tax Tribunal, which allowed partial relief by deleting some of the additions made by the Assessing Officer.

- Both the Revenue and the assessee filed reference applications against the Tribunal's order, which were disposed of by the Tribunal.

- The Revenue then moved an application under Section 256(2) (of Income Tax Act, 1961), and the court directed the Tribunal to refer the questions of law for consideration.

Arguments:

- The Revenue argued that the Tribunal erred in allowing the set-off of unaccounted cash payments against unaccounted cash receipts, and in deleting the additions made in respect of the two land deals (Amrakadam and Sangvilla).

- The assessee argued that the Tribunal's findings on the land deals were correct, as the assessee had provided sufficient information to discharge the burden of proof.

Key Legal Precedents:

- S. Kuppuswami Mudaliar v. CIT (1964 53 ITR 520)

- CIT v. Devi Prasad Vishwanath Prasad (1969 72 ITR 194)

- Commissioner of Income-tax v. President Industries (2002 258 ITR 654)

- Commissioner of Income-tax (Central) Cochin v. P.D. Abraham @ Appachan (2013 349 ITR 442)

Judgment:

- The court found the Tribunal's findings on the land deals to be perverse, as the Tribunal had not properly considered the evidence on record and had drawn inferences based on irrelevant factors.

- The court held that the Tribunal had committed an error in shifting the burden of proof to the Revenue, when the assessee had failed to discharge the primary burden of providing complete information about the land deals.

- The court set aside the Tribunal's findings on the land deals and remanded the matter back to the Assessing Officer for a fresh adjudication.

FAQs:

Q1. What was the main issue in this case?

A1. The main issue was whether the Tribunal's findings on the set-off of unaccounted cash payments against unaccounted cash receipts, the allowability of claimed business losses, and the additions made in respect of two land deals were correct.

Q2. What were the key legal precedents cited in the case?

A2. The key legal precedents cited were S. Kuppuswami Mudaliar v. CIT, CIT v. Devi Prasad Vishwanath Prasad, Commissioner of Income-tax v. President Industries, and Commissioner of Income-tax (Central) Cochin v. P.D. Abraham @ Appachan.

Q3. What was the court's decision?

A3. The court found the Tribunal's findings on the land deals to be perverse, as the Tribunal had not properly considered the evidence on record and had drawn inferences based on irrelevant factors. The court set aside the Tribunal's findings on the land deals and remanded the matter back to the Assessing Officer for a fresh adjudication.

Q4. What was the key issue with the Tribunal's findings on the land deals?

A4. The court found that the Tribunal had committed an error in shifting the burden of proof to the Revenue, when the assessee had failed to discharge the primary burden of providing complete information about the land deals.

Q5. What is the significance of this case?

A5. The case highlights the importance of properly discharging the burden of proof in income tax disputes, and the court's role in ensuring that the Tribunal's findings are based on a proper appreciation of the evidence.

1. This reference is made at the instance of Revenue under Section 256(2) (of Income Tax Act, 1961), 1961 (for short the 'Act 1961).

2. This Court passed an order dated 18.09.2000 in Income Tax Application No.264 of 1999, directing the Income Tax Appellate Tribunal, Ahmedabad Bench-'A', Ahmedabad (for short the 'Tribunal') to refer the following three questions arising out of the Tribunal's order dated 19.06.1998 in IT(SS) Appeal No.216/Ahd/1997 for the block Assessment Years 1985-86 to 1994-95 and part period from 01.04.1995 to 21.09.1995 :

2. Whether in the facts of the case, the ITAT was right in law holding that unexplained and unaccounted cash investment which did not result into tangible benefit was allowable expenditure under section 37 (of Income Tax Act, 1961) as business loss under section 28 (of Income Tax Act, 1961) ?

3. Whether the order of the ITAT is not perverse as being contrary to the evidence on record or as in the case Amrakadamb land deal with Sangvilla land deal based on evidence at all ?”

3. The Tribunal accordingly forwarded the statement of case along with paper book for opinion of this court on the above questions of law on the facts of the case stated therein.

4. The short facts of the case are that the assessee, who is an individual and dealer-cum- broker in lands was assessed under Section 158BD (of Income Tax Act, 1961) on the basis of the seized documents and various statements recorded under Sections 132 (of Income Tax Act, 1961) and 131 (of Income Tax Act, 1961), 1961 during the course of search and seizure operation on 21.09.1995 at the premises of two other land brokers one Shri Deepak Mehta and other Shri Suresh Patel.

4.1 The Assessing Officer completed assessment for the block period determining the total income of Rs.34,63,47,179/- vide order dated 30th September 1997.

4.2 The assessee being aggrieved preferred an appeal before the Tribunal as per the provision of Section 158BC (of Income Tax Act, 1961) read with Section 256 (of Income Tax Act, 1961).

4.3 The Tribunal vide order dated 12th June 1998 allowed partial relief to the assessee by deleting some of the additions made by the Assessing Officer.

4.4 The Revenue as well as the Assessee both filed Reference Applications against the order of the Tribunal, which were disposed of by the Tribunal vide order dated 30.11.1998 in Reference Application No.660 and 69 (of Income Tax Act, 1961)6/Ahd/1998, rejecting both the Reference Applications.

4.5 The Revenue moved an application under Section 256(2) (of Income Tax Act, 1961) before this Court, wherein this Court directed the Tribunal to refer the above questions of law for consideration.

QUESTION NO.1

5. The Question No.1 pertains to set off of unaccounted cash payments against unaccounted cash receipts of the assessee. The assessing officer has referred to the statement of assessee recorded by the Department in Para 4.3.2 of the Assessment Order, wherein it is stated that the assessee admitted with regard to the two transactions of land near Ramdev-pir-no-tekro near Satellite area in Ahmedabad through Shri Dipak Mehta with Shri Saurav Shah with Saumya Construction, which were the same as stated by Shri Dipak Mehta and as per his seized papers showing the area of land as approximately 18538 sq.yds. and the land was sold at the rate of Rs.1988 per sq. yd., which was in the name of Jitendranagar Co-operative Housing Society for total consideration for Rs.3.68 Crore. It was stated by the assessee that initially it was decided to get Rs.70 Lakhs by cheque and remaining by cash but as per final settlement amount was agreed for Rs.3.5 crores and stated to have received Rs.2.83 crores in cash, out of which Rs.2.53 crores was received through Shri Dipak Mehta in cash and cheque payment must have been made to the society. With regard to the second land deal transaction for final plot No.1196, the assessee sold it at the rate of Rs.1125 per sq. yd. for the total area approximately 11933 sq. yds. The deal was finally settled for total consideration of Rs.1.35 crores and out of which approximately Rs.48 Lakhs was paid by cheque to farmers and land owners and remaining Rs.87 lakh was received in cash. When specifically confronted with two seizes pages and statement of Shri Dipak Mehta in Question No.4 and 5, the assessee stated that contents of these pages and explanation of Shri Dipak Mehta appears to be correct with minor variations.

5.1 The assessing officer did not accept the explanation given in the reply furnished by the assessee as observed in Para 4.4.4 of the assessment order, which reads as under:

“i) Shri Dipak Mehta in his statements categorically stated that full considerations in cash Rs. 90,25,069/- was agreed with the assessee.

ii) The assessee has admittedly accepted that the transaction was held between him and Saumya Construction Co. and as replied in his statement he has received Rs. 87 lacs in cash and Rs. 48 lacs were paid by cheque to the farmers directly by Saumya Construction through society.

iii) The assessee was asked to file the confirmation letters of alleged cash payments to the farmers but he has neither submitted the addresses of the farmers in full and nor confirmation letters in support of cash payment to the farmers for purchase of land at the rate of 851 per sq. yd. including cheque payment has been filed.

iv) The amount of Rs. 32.70 lacs claimed as surplus in the hands of the assessee is not acceptable as Shri Saurabh shah, Shri Dipak Mehta and assessee himself had admitted to have paid and received cash payment respectively. Since no evidence for further cash payment to the land owners is furnished, therefore assessee's contention is not acceptable.

v) No specific date of payment of amount and other corroborative evidences for subsequent payments to farmers in cash are given hence assessee's plea is unfounded and far from truth and apparently has been advanced to reduce the undisclosed income as done on one pretext or another in respect of other land deals also and hence self serving claim is rejected.”

5.2 The Assessing Officer rejected the claim of set off made by the assessee in para 10 of the assessment order, which reads thus:

“10. CLAIM OF SET-OFF

10.1. The assessee in his writ submission filed has not pressed any claim for set off of amount received against land deals, towards undisclosed investment made. The assessee despite specific requisition did not deliberately furnish the total wealth statements as on 31-3-1993, 31-3-1994, 31-3- 1995 and 21-9-1995. The assessee has not furnished any other details or particulars about availability of funds from such unaccounted land deals in the course of present assessment proceedings. It is settled position of law that for pressing any claim based on facts, the onus lies on the assessee to furnish the basic and primary facts. Hence in absence the same the claim cannot be at all considered. Further still transaction for which undisclosed income has been added and additions have been made for unexplained investment, it is to be noted that the amount of Rs. 2.53 crores offered to be taxed in his hands concerning land deals at Ramdev-Pir-No-Takro between Nila Housing & Infrastructures Pvt. Ltd. And Samuya Construction Co. Ltd., the amount has been protectively taxed in the hands of assessee and substantial addition has already been made in the hands of the company. Thus those funds are prima facie not available for planning any further investments made by the assessee in his individual hands business and has been accordingly disallowed / restricted for reasons discussed in the Asst. Order passed.

10.2. Coming to the other investment as emerging from the appreciation of seized papers most of the investments have been made during the F.Y.1994-95. On money receipts pertaining to the second land deal of Ramdev-pir no -Tekro were received during the F.Y. 1993-94 The entire on money payment from RDIL at Rs.12.80 crores has been received only from April 1995 onwards till September, 1995. Similarly the undisclosed income determined for investment and profit in remaining two land deals at 325, 292 have been also determined for part of search year falling in F.Y.95-96 and the brokerage amount, according to assessee’s own version was not received and was receivable only. Thus on prima facie merits also assessee is not entitled to any set off of unaccounted income against the unexplained investment made. Further, it is to be clarified that considering the volume of huge land deals entered into by assessee it cannot be automatically presumed that Income received by way of on money receipts was available for investment in the land deals and was not otherwise invested. Hence, the assessee is not entitled to any claim of set off and all the income as well investment determined are liable to be considered without any set off against each other.

11. UNDISCLOSED INCOME OF ASST. YEAR 1995-96

11.2 So also unexplained cash credit has been determined at 11.85 Lacs as the assessee has failed to discharge his onus for establishing the identity of the creditors, genuineness of transactions and credit worthiness of creditors as per requirement of section 68 (of Income Tax Act, 1961) and hence, same has been accordingly order. Accordingly interest claimed on the same of Rs.1,40,549/- has also been held to be inadmissible.

11.3. The overriding provisions of 158 BD required that income for the asstt. year for which return has not been filed till the date of search and the date has expired, entire income shall be treated as undisclosed. The due date in the case of assessee is prima facie 31.8.1995 as noted from his return of income for A.Y.1994-95 and prima facie books of accounts of his proprietary concern are not required to be audited. Hence, the entire income for Asstt. Year 1995-96 is required to be treated as undisclosed income for the purpose of Block Assessment Proceeding as determined in the Asstt. Order passed U/s.143(3) (of Income Tax Act, 1961) for A.Y. 1995-96.

5.3 The Tribunal however, allowed the claim of the assessee for adjustment of subsequent payments against the earlier receipts by observing in para 46 of the order, which reads thus:

“46. In para 10 on pages 101 and 102 of the assessment order heading given is “Claim of Set Off” and it is rejected. The crux of the matter is that the assessee has claimed that he has admitted to the receipt of certain sums in cash and also to the payments of certain other sums in cash. The Assessing Officer has drawn inference in regard to receipts and payments of individual items but in the end has taxed the gross receipts plus gross payments. He has not allowed adjustment of subsequent payments against the earlier receipts of cash which becomes otherwise available with the assessee. It means that assessment order proceeds on the footing that when the assessee makes a payment his cash balance is Nil and, therefore, whatever he has paid he has done so from his income from undisclosed sources on the respective date(s). The assessee's contention is that he has admitted to the existence of cash receipts and payments and a reasonable view demands that subsequent payment should be presumed to be made out of the cash available from the earlier receipts, if any. In Income-tax quarters it is generally referred to as cash flow statement and it will not be out of place to mention that even in the clubbing of transactions of Hundi loans the Department used to prepare such cash flow statement and then tax the peak amount. We are mentioning it because in those cases ledger accounts existed in different names and consolidation of all the ledger accounts meant that the repayments made to one of the alleged creditors was regarded available to this very assessee for introduction of credit on a subsequent date in another name. The assessee's case obviously stands on a better footing that they are undoubtedly admitted and/or treated as his own moneys received by him and paid by him. So in principle it is difficult to uphold the Department's view. We are not impressed by the plea mentioned in para 10.2 on page 102 that income received by way of on-money receipts cannot be regarded as available for investment in land deals. The Assessing Officer suspects that it was “otherwise invested”. In our considered opinion, in is not reasonable or judicious approach. There cannot be any reasonable cause for rejecting the assessee's claim of adjustment of subsequent payments against earlier receipts. Accordingly ground No.15.1 & 15.2 are allowed.”

SUBMISSIONS OF REVENUE FOR Q.NO.1

6. The learned senior advocate Mr. M.R. Bhatt assisted by Ms. Mauna Bhatt, the learned standing counsel appearing for the Revenue submitted that no peak credit theory would be applicable and the entire unaccounted gross receipts are to be taxed along with the gross payments/expenses because, though the onus lies on the assessee, he failed in providing any evidence and in absence of any evidence indicating payments made/expenses incurred by assessee, theory of peak credit cannot be applied. It was submitted that there is no nexus between the expenses and receipts and therefore, telescoping could not be proved as the theory of telescoping would be applicable when there is nexus between unaccounted receipts and unaccounted expenses.

6.1 It was submitted that the assessee is not into the business of trading where the activity of sale and purchase is involved where there can be presumption of incurring expense despite no evidence.

6.2 It was submitted that for example, the evidence available on record indicates that Rs.20 Crore was received by the assessee between specified period which was not recorded in the books of accounts of the assessee and therefore, the same would be unaccounted receipt, whereas the evidence available on record indicates payments made during that period which were unaccounted payments/expenses, therefore, in such case, on account of having nexus between receipt and payment/expenses, theory of telescoping would be applicable. However, the attention of the Court has been invited to the activities of the assessee as recorded by the Assessing Officer to point out that the assessee was dealing with real estate especially land either on his own or as a middleman-broker, or rendering various land related services, which may be desired by the investors like clearances under Land Ceiling Law, N.A. permission etc. It was pointed out the assessee was a sophisticated broker in real estate as per his own statement in his letter dated 11.09.1997 and therefore, in absence of any evidence showing nexus or co-relation between unaccounted cash receipts and payments, assessee cannot be given benefit of telescoping.

6.3 The learned senior counsel further referred to the non-cooperation of the assessee during the assessment proceedings as recorded by the Assessing Officer by detailed discussion with regard to various land deals of the assessee. The learned counsel therefore, submitted that though the onus lies on the assessee, the assessee failed in providing any evidence with regard to the expenses/payments made and therefore, the unaccounted cash receipts and payments are required to be taxed under Sections 69B (of Income Tax Act, 1961) and 69C (of Income Tax Act, 1961),1961 as unexplained investment/expenditure .

6.4 The learned advocate submitted that the Tribunal has not considered the provisions of Sections 69B and 69C of the Act, 1961 in proper perspective and in support of his contentions reliance was placed upon the following decisions:

(i) Madathil Zainuddin vs. Commissioner of Income-tax, Kochi reported in [2014] 44 taxmann.com 241 (Kerala), wherein the High Court of Kerala has held as under:

“'7. The Tribunal proceeded to analyse the facts on record and opined that the stand of the assessee was different from time to time, so also opined assessee was not even able to establish that the source of income was from gold business. If the first stand of the assessee that funds were transferred from Mumbai to Kerala through bank accounts were to be believed, said amount cannot be his amount. But it is also surprising to see that he admitted income of Rs.50 Lakhs in his bulk return as peak credit. This would only go to show; though he tried to establish the transfer of funds from Mumbai to Kerala it was not properly explained. Then coming to stand of the assessee, the assessee failed to bring on record any material to substantiate his stand and the same cannot be believed according to the Tribunal for the following reasons which are extracted below. The claim of the assessee does not appear to be true.

(a) If the assessee had really carried on trading in gold biscuits, he could have at least tried to reconcile the quantity details of gold vis-à-vis the deposits found in the bank accounts.

(b) Presuming for a moment that the deposits represent sale value of gold, we notice that the deposits are always in lakhs that too in round figures, which would not be so in practical situations. There is also wide variation between two deposits, which would not be normally so if the assessee is carrying on trading activity.

(c) From the copy of the three bank accounts placed in the paper book, we notice that the assessee has received an aggregate deposit of Rs. 1.23 crores in the month of December 2001. Even if the initial deposit of Rs. 12 lakhs each (Total Rs. 24.00 lakhs) received in Account Nos.34 and 11804 is considered as the capital of the assessee, it does not commensurate with the amount declared by the assessee in his block return, i.e. up to 31-3- 2001. The assessee has declared only a sum of Rs. 8.00 lakhs only as undisclosed income.

(d) In the month of December, 2001, we notice deposits of Rs 25.00 lakhs and Rs. 50.00 lakhs, but there after the deposit amount was in the range of below ten lakhs only up to 20-3-2002. Thereafter, there is a deposit of big amount, i.e., Rs. 24.00 lakhs on 23.3.2002. The last deposit was Rs. 20.00 lakhs made on 6.4.2002. The assessee has not explained the reasons for stopping the alleged gold trade thereafter.

Paragraph 14 is the actual opinion of the Tribunal which deals with the details furnished by the assessee in the cash flow statement. The Tribunal made this exercise in order to understand the claim of the assessee whether the income declared by the assessee in various years including peak credit amount can be taken as source for the cash of Rs. 65 Lakhs seized by the police at Chennai. The cash flow statement with reference to the financial year 2000-01 shows Rs. 3 Lakhs followed by Rs 2 lakhs in the financial year 2002-03 indicating that Rs. 2 Lakhs was from brother Hussein in the business. There were no details with regard to the nature of business. On the other hand, in the first letter addressed to the Deputy Director of Income Tax this Rs. 65 Lakhs was given to Mr. Azeez to purchase gold biscuits for the purpose of starting business by his brother and others. In other words, it was not the amount pertaining to his gold business but an amount for the purpose of gold for his brother's business. This is a relevant fact that has to be taken note of. Having regard to this stand of the assessee and also unexplained income reflected in the cash flow statement, the Tribunal was justified in not placing much reliance on the cash flow statement furnished by the assessee, as it was a self serving one without supported by any regular bank account and documents.

8. Then coming to the statement of assessee, the income of Rs. 1 Lakh each declared in the years relevant to the assessment years 1997-98 and 1998-99. there is doubt expressed by the Tribunal whether that Two Lakhs was still remaining with the assessee after a gap four or five years according to us it is a genuine doubt. With regard to the declaration of peak credit of Rs. 50 Lakhs, the Tribunal was Justified in saying, by operation of law as legal fiction provided under Section 68 (of Income Tax Act, 1961) and 69 in the absence of proper explanation of the assessee relating to bank transactions Rs. 50 Lakhs becomes taxable. Then the question is whether the amount of Rs. 65 Lakhs in the hands of the assessee in December, 2012 would represent cash credit amount in the banks when the assessee fails to explain the source of income so far as the bank account in the light of the fact that what exactly the business of the assessee was not proved. In the absence of documents supporting such contention, the Tribunal was justified in continuing the opinion of the appellate authority that all the amounts shown in the bank accounts are entirely different from the amount of cash Rs. 65 Lakhs found in the hands of the assessee in December, 2012, because if he was really dealing with gold business, it is hard to believe that he was keeping Rs. 65 Lakhs idle with him for a period of more than nine months, that too, to start business for his brother in gold as explained in the letter. First letter immediately addressed after seizure of the gold becomes very relevant. If he was dealing in the gold business he would have declared so in the said letter. But his explanation regarding the bank account was that he acted only as an agent for transferring funds from Mumbai to Kerala through is bank accounts.”

(ii) Kahan Udyog v. Commissioner of Income-tax reported in [2013] 38 taxmann.com 261(Delhi), wherein the Delhi High Court analyzing the provisions of Section 69C (of Income Tax Act, 1961) upheld the addition made by the Assessing Officer in absence of any details furnished by the assessee in that case with regard to the expenditure incurred, the Delhi High Court has held as under:

“3. In the block assessment order dated 29th November, 1996, the Assessing Officer has referred to various seized papers in respect of unaccounted sales and unaccounted expenditure. These were inventorised. It was found that these transactions were not reflected in the regular books of accounts. Before the Assessing Officer, the appellant had submitted that the difference between the excess of expenditure over receipts, should be brought to tax and treated as undisclosed income and the two amounts should not be separately taxed. Assessing Officer in the present case did not tax the unaccounted sales and has only taxed unaccounted expenses/expenditure/withdrawals. Before the tribunal, similar plea was raised but was rejected after making reference to the order of the tribunal in the case of Siddhartha Woolen Mills [IT Appeal No. 59 of 2000, dated 25-7-2013]. We have dismissed the appeal of the assessee in the case of Siddhartha Woolen Mills (supra). In the present case, we notice that the tribunal has given relief to the extent of Rs. 1,50,000/- and the Assessing Officer has not made any separate addition on account of profits from unaccounted sales. It is recorded in our order dated 25th July, 2013 in the case of Siddhartha Woolen .Mills (supra) that the expenditure incurred was on account of electricity, petrol, tea pool, etc. and the names of the persons and details why the expenditure was incurred had not disclosed and furnished. The appellant has not, in the present case, furnished details or explained nature and purpose behind the "expenditure". Some expenses have been incurred towards kabadi etc. Names of persons do find mention but the nature of activities undertaken why and for what purpose the payment was made, are not known. It was for the appellant assessee to produce relevant material or produce the said person to justify the payment and show and establish that the expense was not personal in nature but related to or was pertaining to unaccounted business. No one mentioned in the list had appeared before the Assessing Officer to testify and explain the nature and character of the said payments. The appellant has accepted that these transactions were not recorded in the books. The appellant ran and took the risk when he entered into these transactions and, therefore, should face the consequences prescribed and mandated under Section 69C (of Income Tax Act, 1961).”

(iii) Commissioner of Income-tax v. Banarsilal Dhawan reported in [1977] 109 ITR 360 (Madras), wherein it is held as under:

Against the order of the ITO, the assessee preferred an appeal to the AAC and before that officer the assessee contended that the ruling of this Court in S. Kuppuswamy Mudaliar vs. CIT (1964) 51 ITR 757 (Mad) enabled the assessee to claim a set-off of the gross profit additions of the past years against the unexplained credits in the year in question. The AAC declined to accept this argument and, in his view, the decision of this Court in S. Kuppuswamy Mudaliar vs. CIT (supra) must be taken to have been overruled by the subsequent decision of the Supreme Court in CIT vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC) : TC42R.1025 with the result, he sustained the order of the ITO. The assessee, thereafter, preferred a second appeal to the Tribunal. The Tribunal held that the decision of this Court in S. Kuppuswami Mudaliar vs. CIT (supra) applied to the facts of this case and that the decision cannot be said to have been overruled by the subsequent decision of the Supreme Court in CIT vs. Devi Prasad Vishwanath Prasad (supra), with the result, the Tribunal accepted the contention of the assessee and allowed the assessee what it called the benefit of set-off of gross profit additions of the past years against the unexplained cash credits in question and directed the deletion of Rs. 31,000 as income from "other sources". It is the correctness of this conclusion of the Tribunal that is challenged before us in the form of the questions extracted already.

7. In the first place, we are of the opinion that once the assessee has originally shown the credits as having emanated from certain named individuals and when he failed to establish the same, it was not open to him to fall back on a claim that these unexplained credits must be taken to have come out of the additions made in the earlier years. Even if it was open to him to put forward such a case, it was for him to prove positively that though the credits stood in the names of third parties, still it was his money which was brought into account in the names of third parties and the money itself came from the additions made to his assessment in the previous years. Incidentally, this will involve his explaining why he brought his own money into the accounts in the names of third parties. The assessee in the present case has not proved any such thing. It is exactly this position which the ITO in his order pointed out while making the additions.

The Tribunal without considering any of these facts proceeded as if the decision of this Court in S. Kuppuswami Mudaliar vs. CIT (supra) laid down a universal proposition of law that whenever an assessee failed to explain the credits found in his books of account, it was open to him to claim a set-off of those credits as against the additions made to his income in the previous years' assessments. As we pointed out already, no such proposition has been laid down by this Court in the decision referred to above. As a matter of fact, apart from removing the misconception arising from the inaccurate and misleading use of the expression "intangible additions", this Court did not lay down any such general proposition of law, as if the additions made to the income returned by an assessee, by the Department, constitute his last refuge whenever he finds himself in a tight corner not being able to explain the credits found in his accounts. The truth is that such additions are as real an income, at any rate as far as the Department is concerned, as the income returned by the assessee, and one can as much as the other constitute the source to explain the credits in the accounts in the subsequent years. Therefore, the decision of this Court does not invest such additions with any special significance as a source to explain the credits in the subsequent years. In any case, it will be a question of fact whether there was evidence to find that such additions were the source of the subsequent credits and in this behalf there is no difference between this source and any other source, apart from the position that with regard to the income assessed in the earlier years, its existence as a possible source of the credits will be a matter of record with the Department while with regard to other sources, their existence may be a matter to be proved.”

Referring to above decisions, it was submitted by the learned senior advocate Mr. Bhatt that the tribunal has committed an error in allowing set off of gross unaccounted payments on certain transactions against unaccounted receipts for computing unexplained investment made by him in accordance with section 69B (of Income Tax Act, 1961) of the I.T Act,1961.

SUBMISSIONS OF ASSESSEE FOR Q. NO.1

7. On the other hand, the learned senior advocate Mr. S. N. Soparkar assisted by the learned advocate Mr. B. S. Soparkar, submitted that the issue of set off of gross unaccounted payments on certain transactions against unaccounted receipts for computing unexplained investment in accordance with section 69B (of Income Tax Act, 1961) of the I.T Act is squarely covered as per the following decisions:

(i) Referring to this decision of the Supreme Court In the case of Anantram Veerasinghaiah & Co. v. Commissioner of Income-tax reported in [1980] 123 ITR 457 (SC), it was submitted that the Supreme Court has held that the mere availability of fund, in all cases cannot imply that the assessee has not earned further secret profits of undisclosed income during the relevant assessment year, but at the same time, it is a matter of consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year.

(ii) Reliance was placed on the case of Commissioner of Income-tax v. President Industries reported in [2002] 258 ITR 654 (Gujarat) wherein it is held that the sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realization of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income of the relevant assessment years, answers by itself in the negative.

(iii) COMMISSIONER OF INCOME TAX (CENTRAL) COCHIN. vs. P.D. ABRAHAM @ APPACHAN 349 ITR 442 (Ker), where in the High Of Kerala held as under:

The assessee himself has voluntarily declared undisclosed income of Rs.43 lakhs over the income returned for the block period. So much so, there is no justification for doubting the entries found in the seized records pertaining to expenditure while accepting the income found recorded therein. When the Department relies on the seized records for estimating undisclosed income, we see no reason why the expenditure stated therein should be disbelieved merely because there is no written agreement and that payments were not made through cheques or demand drafts. Even when unaccounted income is determined from business carried on clandestinely or not, the statute does not authorize assessment of anything other than "undisclosed income" which has to be arrived at after allowing expenditure incurred by the assessee whether it be accounted in the regular books or not.

What is clear from the clandestine records seized from the assessee is that both the film producer and the film directors were engaged in collections and payments outside the regular books of accounts and that is the only reason why there is no written agreement between them in regard to profit sharing and the payments are consciously not made through cheques or demand drafts. The Assessing Officer has also stated that the purpose of payments is not seen recorded in the seized records. We do not think this unrealistic stand is justified in the context of the business carried on by the assessee because between the film producer and the film directors income seen recorded and payments seen made should be taken as relating to business and nothing else. The mere fact that film directors have not confirmed receipt of payment in cash from the assessee also is not a ground for treating the payments as bogus or not genuine. In our view, there is nothing to doubt the genuineness of the payments because assessee himself explained that the film directors are entitled to share profits in respect of successful movies, and the Department has not established that such practice is not there in the film industry. Since, in principle, we uphold the order of the Tribunal that entries relating to payments to film directors found in the seized records should be accepted, we do not think there is any need for us to go to the details of the films produced and various amounts paid periodically by the assessee. Therefore, we do not find any justification to interfere with the findings of the Tribunal with regard to the payments made to the Directors though not recorded by the assessee or the payees in the regular books of accounts.

9. The remaining part of the addition is only disallowance of payments stated to have been made by the assessee to M/s.Kumudavally Pictures for purchase of a Tamil film. It is seen that while the total payments were Rs.37 lakhs, only Rs.22 lakhs was accounted and balance Rs.15 lakhs was unaccounted payments, which is also seen recorded in the seized records. We do not think there is anything to doubt the genuineness of the transaction because generally what is found by the Department from the seized records is that the business is done partly with black money and partly with white money though accounting of income and expenditure are of insignificant amounts.

10. Learned Senior Standing Counsel for the Revenue has also made reference to the explanation to Section 37(1) (of Income Tax Act, 1961) and also to the scope of the proviso inserted to Section 69C (of Income Tax Act, 1961) by the Finance (No.2) Act, 1998 with effect from 01/04/1999. Learned counsel for the assessee contended that film production is not an illegal business and therefore payments made though without accounting cannot be said to be illegal payments attracting explanation to Section 37(1) (of Income Tax Act, 1961). We do not think unaccounted expenditure in a proper business can be treated as an expenditure prohibited by law to attract explanation to Section 37(1) (of Income Tax Act, 1961). So far as the proviso to Section 69C (of Income Tax Act, 1961) is concerned, in the first place the proviso introduced with effect from 01/04/1999 does not apply to the block assessment for the period covered herein and secondly we do not think excess expenditure over accounted expenditure in business is covered by Section 69C (of Income Tax Act, 1961) itself. We therefore do not think there is any application of these two Sections to the case in hand. We, therefore, do not find any ground to interfere with the orders of the Tribunal with regard to the deletion of total addition of Rs.1.09 crores and odd to three film directors and one film producing Company towards unaccounted payments made by the assessee to them. The first question raised in Revenue's appeal is therefore answered against the Revenue and in favour of the assessee.

(iv) Unreported decision in case of Commissioner of Income Tax v. Tirupati Construction Company in Tax Appeal No. 1010 of 2014.

It was therefore, submitted that the assessee is entitled to set off of payment made in cash against receipts in cash when the assessee has admitted to the existence of cash receipts and payments and in such circumstances, subsequent payment should be presumed to be made out of the cash available from the earlier receipts.

Therefore, the Assessing Officer could not have added the entire gross receipt in the hands of the assessee. It was therefore, submitted that the Tribunal has rightly held that there is no reasonable cause for rejecting the claim of the assessee for adjustment of subsequent cash payments against the earlier cash receipts.

OPINION FOR Q.NO.1

8. Having heard the learned advocates for the respective parties and having gone through the materials on record, it is pertinent to note that the assessee did not furnish any detail or particular about availability of the funds from the unaccounted land deals during the course of assessment proceedings as recorded by the Assessing Officer. The assessee failed to furnish the basic and primary facts. Moreover, it appears that the Tribunal has also not considered the fact that the amount of Rs.2.53 crores pertaining to the land deals at near Ramdev-pir- ni-tekro between Leela Housing and Infrastructure Housing Pvt. Ltd. and the Saumya Construction has been protectively taxed in the ends of the assessee and substantive addition has already been made in the hands of the Companies. Thus, such funds were prima facie not available for any further investment made by the assessee in his individual land business.

8.1 With regard to other investments, as per the seized papers most of the investments have been made during the F.Y.1994-95. On money receipts pertaining to the second land deal of Ramdev-pirni-Tekro were received during the F.Y. 1993-94 and the entire on money payment from RDIL at Rs.12.80 crores was received only from April 1995 onwards till September, 1995.

8.2 Similarly the undisclosed income determined for investment and profit in remaining two land deals were also determined falling in the F.Y.95-96 and the brokerage amount was also not received. Therefore, the Assessing Officer on the basis of the facts available on record has held that the assessee is not entitled to any set off of unaccounted income against the unexplained investment made as there is no co-relation between the unexplained cash receipts and unexplained investment.

8.3 In view of above, we are of the opinion that the Assessing Officer has rightly not granted the claim of the assessee for set off on the basis of the facts of the case as there is no even prima facie evidence to show that the income received by way of on money receipts was available for investment in the land deals and was not otherwise invested.

8.4 The Tribunal however, emphasized on a presumption that a reasonable view demands that subsequent payment should be presumed to be made out of the cash available from the earlier receipts, if any. The Tribunal without adverting to the facts has allowed the claim of the petition only on the ground of such presumption by referring to the principles of peak credit without applying the same to the facts of the case.

8.5 Moreover, the Tribunal has also erred in discading the fact of absence of any material to show that the assessee proving nexus or co- relation between unaccounted cash receipts and payments. Therefore, in such circumstances, it appears that the Assessing Officer has rightly held that the assessee is not entitled to any claim of set off and all income as well as investment determined are liable to be considered without any set off against each other.

8.6 In view of the facts available on record, we are of the opinion that the Tribunal, which is a final fact finding authority has reversed the findings of the Assessing Officer only on the basis of the principles of law without referring to the facts available on record. Therefore, the decisions cited on behalf of the assessee which are based on facts of each case are not applicable and hence the same are not discussed in detail.

8.7. In such circumstances, we answer the question No.1 in negative i.e. in favour of the Revenue and against the assessee.

QUESTION NO.2

9. As regards the Question No.2 for allowing the loss under Section 37 (of Income Tax Act, 1961) in respect of unexplained and unaccounted cash investment which did not result into tangible benefit, the factual aspects of the case relating to Baronet land and Jagatpur land are that the assessee claimed the loss of Rs.2.93 crores on account of payment made to one Shri G.C. Patel for procuring land as the land deal could not be materialized. The Assessing Officer has referred to the statement of Shri G.C. Patel who has deposed that he has not received the said amount. The Assessing Officer has narrated the facts in detail in para 5 with regard to Baronet land and land at Jagatpur.

SUBMISSIONS OF REVENUE FOR Q. NO.2

9.1. The learned Senior advocate for the Revenue submitted that there is no evidence on record to show that the assessee made payment to Shri G.C. Patel, whereas on the contrary Shri G.C. Patel in his statement stated that he did not receive the amount of 2.93 Crore from the assessee. It was submitted that the onus is on the assessee to establish that he has suffered the loss and if the contention of the assessee is accepted then such amount which is not supported by any evidence except bare words of the assessee would go out of tax. It was therefore, submitted that the findings given by the Tribunal for allowing loss is beyond the records are perverse.

9.2. The attention of the Court was invited at the findings given by the Assessing Officer in para 5.2.10, which reads thus:

“5.2.10 DETERMINATION:

(ii) The above depositions spread over two months, that too after 2 months from the end of the block period clearly brings out that when in Feb,96 the assessee was fairly certain about the rights against cash payment made and was accordingly making negotiations. Further, it is simply unbelievable that when he had himself negotiated the subsequent land deal (as now stated to be between Labh Construction Ltd. And Adani's) that he would have totally sacrificed his interest represented by investment of Rs. 2.93 crores made in cash. The further contention raised that department may now confirm with Labh Construction Ltd., that no cash payment was made is on face of it devoid of any merit or substance and fairly speaking such a contention cannot be seriously even raised. This is an admitted position that any person would not admit any unaccounted investment in land deal, thereby inviting tax liabilities and penal consequences and additional Stamp Duty, unless department is in possession of incriminating evidences and hence there is absolutely no question of Labh Construction Ltd. admitting any such payment. Hence the contention now taken about loss are on the facts of it, devoid of any merit and substance and in any case assessee has brought to evidence or details on records to establish huge loss and further fact that such loss was actually incurred before the end of block period. It is worthwhile to note that assessee has raised serious objections that transactions discovered in other searches, even though pertaining to the block period cannot be considered in block proceedings. Here on the fact of it until after the close of more than 4 months from the end of block period i.e. 21-9-95, the assessee in his statement recorded on 7-2-96 admitted the existence of right and thus loss was not incurred before the end of block period.

(iii) Further it is settled position of law that income/loss is to be determined with reference to the definite period covered under assessment and loss/profit incurred/earned beyond that period cannot enter into the computation of earlier period. The assessee in view of above discussion has totally failed to establish that loss was incurred prior to the end of block period and value of investment made in cash at the end of block period was NIL and hence the claim of loss is not maintainable on facts as well as in law and is hereby rejected.

(iv) In view of the aforesaid discussion, addition of Rs. 2.93 crores is made in the total income of block period in the hands of the assessee as unexplained investment. Since a sum of Rs. 50 lakhs is paid cash in the F.Y. 93-94 and Rs. 2.43 Crores is paid in cash in the F.Y. 94-95, hence, accordingly addition as unaccounted investment for Rs. 50 lakhs is made in the Asst. Yr. 1994-95 and Rs. 2.43 crores in the Asst. Yr. 1995-96 respectively. (A.Y. 1994-95 Rs. 0.50 crores, A.Y. 1995-96 Rs. 2.43 crores.)”

9.3. Similarly with regard to the land at Jagatpur, the assessing officer in para 5.5.5 of the assessment order has observed as under :

“5.5.5 DETERMINATION :

i) It is an admitted fact that the land was purchased at the payment of Rs. 10 lacs from the farmers and sold to Shri Govind C. Patel at Rs. 2.16 crores and repurchased by the assessee at Rs. 3.36 crores. Against initial sale, a sum of Rs. 1.90 crores is received by the assessee from Shri Govind C. Patel from 19-10-1993 to 10-8-1994. Rs. 26 lacs were outstanding at the time of repurchase by the assessee. The account was squared up by way of Hawala of Kanubhai Patel to Rs. 1.75 crores and Rs. 1.35 crores payable by the assessee to Shri Govind C. Patel and by cross entry (adjustment) of Rs. 26 lacs.

ii) It is further clear from the page.105 that amount outstanding at the time writing of page.105 on the instruction of the assessee was Rs. 1.05 crores against Rs. 1.35 crores as on page.21. It means that Rs. 30 lacs is admittedly paid by the assessee to Shri Govind C. Patel, Further the assessee has himself admitted investment of Rs. 87 lacs in his statement recorded u/s. 131 (of Income Tax Act, 1961) by the ADIT and accordingly disclosed the amount as his unaccounted investment vide reply to Q.16 of Statement dtd. 16-11-1995.

iii) The assessee has claimed loss of Rs. 130 lacs vide Para 10.5 which is not acceptable as no proof regarding cancellation of the deal with the farmers and no other evidence to this effect were furnished during the course of assessment proceedings by the assessee. Apparently, the poor farmers simply could not have afforded to cancel the deal after receipt of substantial sum which would have been required to be returned by them in the event of such cancellation, would have entailed, more so considering assesses self professed role as sophisticated broker in para 1.2 of his written submission dtd. 11.9.97 as extracted above. The undisputed admitted position about this land transaction which emerges is here under :

1. Assessee has paid Rs. 10 lacs to farmers

2. Assessee has further paid Rs. 77 lacs to Shri Vijay Shah in connection with reacquisition of this land as admitted by assessee.

3. Assessee has also paid Rs. 30 lacs in connection with this very deal, apart from Rs. 175 lacs paid to Kanubhai as agreed in para 10.4(f) of written submission dtd. 11-9-95. Thus, against total payment Rs. 205 lacs, assessee was in receipt of money to the tune of Rs. 190 lacs. Thus a further amount of Rs. 15 lacs was paid.

4. Thus overall payment / investment made by assessee in connection with this land deal stand at Rs. 102 lacs (Rs. 10 Lacs + Rs. 77 lacs + Rs. 15 lacs) against the land whose initial sale consideration was agreed at Rs.2.16 crores and later the assessee reacquired at Rs. 3.36 crores.

iv) In the face of this clear position of facts, assessee's contention of loss without any shred of evidence is required to be simply ignored as assessee is holding this land worth more than Rs. 3 crores obtain investment of Rs. 1.02 crores only. Further the assessee being self professed expert in land clearance etc., it is difficult to accept assesses contents as now taken that he could not get necessary clearance or permission which remains totally unsubstantiated in absence of any evidence. Further the amount payable at Rs. 43 lacs as contended in para 10.7 and treating the same as written back liability shows that such amount was not payable by the assessee to Govind C. Patel, which in turn confirmed all the happening about the land deal till date of recording of statement dt. 7-2-1996.

vi) In view of the above discussion the total investment in the land at Rs. 102 lacs is added to the income of the assessee u/s. 69 (of Income Tax Act, 1961) which includes Rs. 87 lacs admitted by the assessee as his net investment. An undisclosed income of the assessee in the Asst. Year 1994-95 for initial payment to farmers at Rs. 10 lakh and balance for A.Y. 1996-97.

(Asst. Year – 1994-95 – Rs. 10 lakhs Asst. year – 1996-97 - Rs.92 lakhs)”

9.4 Referring to the above findings of the Assessing Officer, it was submitted that there is no evidence for any payment made by the assessee to Shri G.C. Patel and therefore, the assessee is not entitled to claim of any loss under Section 37 (of Income Tax Act, 1961).

9.5 Referring to the findings given by the Tribunal in para Nos.23, 24 and 38 of the impugned order, it was pointed out that the Tribunal has not considered the fact that there is no evidence available on record, which indicates the payment made to Shri G.C. Patel and Shri G.C. Patel has denied the receipt of such payment. It was submitted that the decisions cited by the assessee before the Tribunal are also of no consequence as in such cases material available on record was indicative of payment made upon which the presumption was drawn for incurring of loss. It was therefore submitted that in the facts of the case, the Tribunal without arriving at any finding of fact has allowed the loss and as such the impugned order of the Tribunal is perverse.

9.6 In such circumstances, it was submitted that the Tribunal has erred in holding that the assessee is entitled to the loss with regard to the unexplained and unaccounted investment, which did not result into tangible benefit under Section 37 (of Income Tax Act, 1961) as business loss under Section 28 (of Income Tax Act, 1961).

SUBMISSIONS OF THE ASSESSEE FOR Q.NO.2

10. On the other hand, the learned senior advocate for the assessee relied upon the findings given by the Tribunal in para 23 to 25 of the impugned order, which reads thus:

“23. The next deal considered in the assessment order is of Baronet land in paras marked 5.2.1 to 5.2.10 on pages 37 to 44. The Assessing Officer has made an addition of Rs. 2.93 crores for cash paid by the assessee to Shri G. C. Patel for acquiring the rights in the aforesaid land. In this particular deal there is no dispute between the assessee and the Department in regard to the quantum. It is admittedly paid by appellant and therefore has to be considered in the assessment of the appellant. We, therefore, need not elaborate herein that aspect. The real dispute is of the allowability of this sum of Rs. 2.93 crores as loss. Assessee's stand is that cash has been paid and the assessee has admitted it and on that basis he is being taxed, but there is no evidence which would be admissible in any civil litigation for supporting the assessee's case that he made that payment and acquired any rights in that land. Assessee claims that Shri G. C. Patel has not admitted to the receipt of this money. Therefore, according to the assessee the cash payment made by him is totally lost to him from the date of search itself due to a sort of precipitate action taken on that date and the sense that negotiations and transactions which were not intended to be recorded and shown came to that and hence the parties involved would take their respective stands on the basis of existing record. Since there is no record existing for booking Shri G. C. Patel and he has not admitted to the receipt of the money paid by the assessee it is a loss to him.

24. On the other hand, Department's contention is that assessee was still having some development rights outstanding which were to be settled and further that it was not conclusively proved by the assessee that the money paid by him was totally lost to him and that too within the block period relevant to this assessment.

25. On careful consideration we find that the information and evidence brought on record in this regard is inadequate for enabling us to take any view in the matter. Respective stands have been reiterated before us but they are basically by way of arguments only and to us they do not appear to be based on some solid evidence – documentary or oral. Actually no evidence has been pointed out to us even in regard to existence of any dispute in regard to this land unlike the position in the Silver Arc Land. Further, assessee has claimed at the development rights in this land have been assessed on successively to a number of parties and ultimately to Labh Construction Ltd. but the Department has tried to verify the correct position in regard there. One can imagine and envisage a number of leads for litigation in this respect but with a view not to restrict the Department's discretion in this regard, we consider it just and proper not to mention them herein. The facts and in the circumstances of the case, it would just and reasonable to set aside this particular act with a direction that the Assessing Officer would adjudicate upon it and he would be free to collect and consider fresh material also as he may deem fits to decide whether it is a loss to the assessee. Similarly, assessee would be free to produce any material in support of his contentions for claim of loss. Of course, the Assessing Officer before taking a view would give a reasonable opportunity of being heard to the assessee.”

10.1. The learned counsel submitted that the Tribunal has remanded the matter back to the Assessing Officer with a direction to adjudicate the issue afresh.

39. The other aspect is that of investment by the assessee. As already indicated assessee has admitted an investment of Rs. 10 lacs to the original land owners and the Department has also accepted this figure. Second figure is of Rs. 77 lacs given out by the assessee and accepted by the Department for the loss really borne by the assessee on this transaction because out of a total loss of Rs. 1.20 crores (3.36 – 2.26) assessee has said and the Department has accepted that a sum of Rs. 43 lacs is retained by the assessee as unilaterally taken remission in the sense that this sum was payable by the assessee to Shri G.C. Patel but it was payable by the assessee to Shri G. C. Patel but it has been neither paid nor regarded as payable after the date of search viz. 21.9.95. This leaves a difference of Rs. 15 lacs (102-87) We have carefully considered that aspect also and we find that there is a flaw in the approach of the Assessing Officer in regard to this sum of Rs. 15 lacs. He has mixed up the inferences to be drawn from the jottings on sheet No. 21 in which Rs. 1.35 lacs is shown as payable by Manoj Vadodariya from there he has jumped to the jottings on sheet No. 105 in which against Jagatpur land only sum of Rs. 105 lacs has shown as payable and he has concluded that a sum of Rs. 30 lacs is paid during the intervening period adding this to 175 lacs paid / payable to Kanubhai he has come to the conclusion that Rs. 205 are paid against the receipt of money of Rs. 190 lacs and hence a sum of Rs. 15 lacs is extra paid. Now the real flaw lies in the fact that he has proceeded with the figure of Rs. 77 lacs for difference between loss of Rs. 120 lacs and unilateral remission of Rs. 43 lacs as admitted by the assessee and then he has adopted the figure of Rs. 105 lacs as on page 105. He appears to have fallen into the error that on the basis of page 105 the figure of payment would come to Rs. 62 lacs (i.e. 105-43) so this amount of Rs. 62 lacs with Rs. 15 lacs computed by Assessing Officer would give a figure of Rs. 77 lacs which is admitted by the assessee. In the computation of the Assessing officer this Rs. 15 lacs has, in effect, been considered twice over. Otherwise also it is obvious that the assessee had met from his undisclosed sources the effective loss of Rs.77 lacs (120-43) and also paid Rs. 10 lacs to the original owners. Hence total investment comes to Rs. 87 lacs only and not Rs. 102 lacs.”

10.3 Reliance was also placed upon the findings of the Tribunal, wherein the Tribunal has discussed the legal aspects of the case in para 44 and 45 of the impugned order, which reads thus:

“44. As already stated, all these unexplained or unaccounted investments were made for business. Any expenditure pertaining to business has to be allowed for computing the business income. If technically unexplained investment is added u/s. 69 (of Income Tax Act, 1961) the deduction is allowable to compute the business income. If technically unexplained investment or unaccounted investment is added u/s. 69C (of Income Tax Act, 1961) the entire expenditure towards it has to be allowed as business loss. This view is supported by the decision of Patna Bench of the Tribunal in the case of Nishant Housing Development Pvt. Ltd. vs. ACIT 52 ITD 103. At this stage, we may point out that to negative this view the Legislature is proposing to amend Sec. 69C (of Income Tax Act, 1961) in following manner :-

“29. Amendment of Section 69C (of Income Tax Act, 1961) – In section 69C of the Income Tax Act, 1961, the following proviso shall be inserted at the end with effect from the 1st day of April, 1999, namely:-

“Provided that, notwithstanding anything contained in any other provision of this act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.”

45. If such disallowance was automatic then there was no need of amending Sec. 69C (of Income Tax Act, 1961). It would be pertinent to note that effect of the amendment if it is approved will come into effect from 1.4.1999 which is far after the relevant years under consideration. The view of the Patna Bench of the Tribunal is definitely a correct view because by technical approach anybody can be taxed on hypothetical income. There are provisions of including deemed income and there are also provisions for restricting the exact expenditure but there is no case of hypothetical income or hypothetical expenditure in the parameter of Income-tax Act. Income-tax Act has been enacted for obtaining tax from the income and no tax can be levied on hypothetical proposition where the assessee will not be able to pay tax as per assessed income. The Supreme Court in the case of Godhra Electricity Co. Ltd. vs. CIT 225 ITR 746 opined that hypothetical income cannot be brought to tax. In that case, it would be seen that if technically is taken the assessee could be taxed in the assessment year when the High Court judgment was in its favour for realising high electrical charges from the customers but subsequently when the concern was taken over by the government no such higher collection was made by the company but on technical view the department had included the income on accrual basis based on High Court Judgment whereas the Supreme Court was of the view that the income accrued to the assessee was only hypothetical and cannot be taxed because it did not realise the same. Mere adopting this decision to show that the actual income or the real income can only be taxed and further that only the deemed income as provide in the Act specifically such as Sec.69 (of Income Tax Act, 1961) can only be taxed. Accordingly aforesaid payments which ultimately did not result into tangible benefit shall be allowable also as expenditure u/s.37 (of Income Tax Act, 1961).”

10.4. It was submitted that the Tribunal after taking into consideration the facts of the case and after considering the case laws cited before it, has allowed the loss claimed by the assessee and the Tribunal also relied upon the amendment made in Section 69C (of Income Tax Act, 1961) w.e.f. 1st April 1999, whereby a proviso was added for disallowance for deduction under any other head of income with regard unexplained expenditure, which is deemed to be the income of the assessee under Section 69C (of Income Tax Act, 1961). It was pointed out that the Tribunal also relied upon decision of the Supreme Court in case of Godhra Electricity Co. Ltd. vs. CIT 225 ITR 746, to hold to apply the real income theory to allow the claim under Section 37 (of Income Tax Act, 1961).

10.5 The learned senior counsel for the assessee relied upon the following decisions:

“4. The facts as emerging from the record reveal that the respondent assessee had claimed that certain debts had become bad in respect of seven parties. The Assessing Officer declined the claim in respect of six parties and allowed the bad debt deduction in respect of A. P. Sayona Trade Association. In respect of two of the parties, namely, Sakar Overseas Pvt. Ltd. and Shree Ram Trading Co., the Assessing Officer noted that these advances were not debts which have been taken into account in the computation of income and that as the assessee had filed cases against these entities and as judgment on these court cases are yet to be delivered, bad debts were not allowed at that stage. It was also noted that the goods were not received and that the payments were made in advance and that therefore, these amounts could not be treated as bad debts. As regards the dues from Quality Foods and S.Y.P. Exporter, the Assessing Officer was of the view that the trade advances for purchases could not be treated as bad debts. As regards S.N. Das Freight Forwarders Pvt. Ltd., the Assessing Officer noted that the same represented excess payment made for forwarding expenses. According to the Assessing Officer, there was nothing to show that the amounts have actually turned bad and he, accordingly, disallowed Rs.5,15,52,492/-.

5. In appeal, the assessee took the stand that without prejudice to its original claim of bad debts, the amount should be allowed as a business loss. The Commissioner (Appeals) called for a remand report from the Assessing Officer and concluded that to the extent the transactions in question were not disputed and the assessee had demonstrated that loss had actually been incurred, the same is to be allowed as deduction as business loss. It was also noted that the assessee had exported substantial quantities of agricultural processed goods, including dehydrated garlic flakes and white onion powder, and it was in this connection that the assessee bona fide and in the course of normal business, gave advances to S.Y.P. Exporter, Sakar Overseas Pvt. Ltd. and Shri Ram Trading Co. It was also noted that criminal cases were also instituted against the persons who were given these advances, who turned out to be fraudulent in their conduct. These advances were accordingly held to be business loss.

6. The Tribunal, after considering the material on record, found that it was an undisputed position that the assessee did in fact trade in processed agricultural produce, in connection with which the advances in question were made, and it was in the course of this trading that, the business loss of making unrecoverable advances was incurred. The Tribunal found, as a matter of fact, that the losses were wholly incidental to the business carried on by the assessee. It further noted that there may not be any trading transactions of these products in the current year, but the business of the assessee has not come to a halt. No doubt, the criminal complaints filed by the assessee had not reached finality and the persons who allegedly and fraudulently obtained these advances were on bail granted by the High Court, however, the remote possibilities of recovery did not take away assessee’s right to claim reasonably foreseeable business loss. The Tribunal noted that the Commissioner (Appeals) had given categorical and detailed findings about these advances having become actually bad and these findings remain uncontroverted and accordingly, confirmed the relief granted by the Commissioner (Appeals).

7. Thus, the Tribunal has recorded concurrent findings of fact to the effect that advances given by the assessee had become actually bad and such findings had remained uncontroverted. It is not the case of the appellant that the Tribunal has placed reliance upon any irrelevant material or that any relevant material has been ignored, nor is the learned counsel for the appellant in a position to point out any material to the contrary to dislodge the concurrent findings of fact recorded by the Tribunal. In the aforesaid premises, the conclusion arrived at by the Tribunal being based upon the findings of fact recorded by it upon appreciation of the evidence on record, does not give rise to any question of law, much less, a substantial question of law, warranting interference.”

It was submitted that the Tribunal has arrived at a finding of fact but the Tribunal did not place reliance upon the irrelevant material or any relevant material has been ignored, more particularly when the learned counsel for the Revenue has failed to point out that the finding of fact recorded by the Tribunal or the conclusion arrived at by the Tribunal are based on irrelevant material or are base on ignoring any relevant material, the impugned order of the Tribunal cannot be said to be perverse and therefore, no interference should be made by this Court in the impugned order of the Tribunal.

(ii) Referring to the decision of the Rajasthan High Court in the case of Commissioner of Income-tax v. Anjani Kumar Co.Ltd. reported in [2002] 124 TAXMAN 429 (RAJ), it was submitted that the Court after considering the fact that advance was paid for acquiring agricultural land to set up a factory, but when the agricultural land was not required, and no capital asset came into existence; and therefore there was no question of granting any depreciation on such asset but as the land was not acquired, therefore, the payment made by the assessee was to be allowed at business loss.

(iii) Relying upon the decision of the Delhi High Court in the case of Commissioner of Income- tax v. Rose Services Apartment India(P.) Ltd. reported in [2010] 326 ITR 100 (Delhi), it was submitted that the High Court has come to the conclusion in that case that the loss incurred by the assessee on account of refund of advance was in nature of business loss.

(iv) Reference was made to the decision of this court in case of COMMISSIONER OF INCOME TAX vs. MAHENDRA N. SHAH reported in 280 ITR 462 (Guj), wherein it was found that the Tribunal has recorded as a matter of fact, that there is evidence in the form of telegrams, correspondence as well as assessee’s attempt through Consulate General of India to recover the money, but in vain and that two post dated cheques received from intermediary had not been honoured and the assessee had not received anything against the amount which was collected by Dubai party by retiring letter of credit. In that case, the Tribunal has further recorded the following findings of facts : (i) the assessee had in fact suffered a loss to the tune of Rs. 3,45,000; (ii) the loss related to the business, came to the knowledge in the year under consideration; (iii) contention that the transaction was not genuine was not even the case of the AO because the AO himself had observed in the assessment order that a fraud had been committed by Dubai party by presenting false shipping documents; (iv) in face of the correspondence and telegrams on record the assessee had prima facie established incurring of loss, but the Revenue had failed to discharge the onus which was clearly on Revenue to show that the transaction was not genuine; (v) the AO had placed undue emphasis on the lapse committed by the bank official but the said fact cannot wipe out the loss incurred by the assessee. In light of the aforesaid findings recorded by the Tribunal while concurring with the view expressed by Dy. CIT(A), it is apparent that the impugned order of the Tribunal does not suffer from any infirmity. In fact, the entire issue is based on facts and appreciation of evidence without involving any question of law. The Tribunal was thus right in holding that the assessee was entitled to deduction of sum of Rs. 3,45,000 as business loss document was on record, which indicate the same.

10.6 It was therefore submitted that the Tribunal having arrived at finding of facts, no error can be said to have committed in the impugned order holding that unexplained and unaccounted cash investment which did not result into tangible benefit was allowable expenditure under section 37 (of Income Tax Act, 1961) as business loss under section 28 (of Income Tax Act, 1961), so as to interfere the same.

OPINION FOR Q.NO.2

11. Having considered the submissions made by both the sides and having gone through the materials on record, it appears that the Assessing Officer has categorically observed that there is no evidence to show that the assessee made payment of Rs. 2.93 crores to Shri G.C. Patel for acquiring rights in the land, the Tribunal has found that it is an admitted position that the assessee had paid only Rs. 10 lacs to about twenty farmers by way of advance and no formal documents of any type were executed with regard to the land. Thereafter, the Tribunal recorded that the assessee entered into an agreement with Shri G.C. Patel to sell the land obviously in the hope that he would be able to pass on the rights of the farmers to Shri G.C. Patel. It appears that thereafter, the Tribunal relied upon the statement of Shri Suresh Patel dated 30th October 1995 that there were disputes with regard to the land in question and presumed that as the cash transactions were not intended to be shown to any Government Department, it is unreasonable to infer that even after the search, the assessee continued to hold some rights in that land. Thereafter, the Tribunal made an inference that assessee made some payments to the farmers being hardly 5% of the value in the hope that he would be able to acquire the rights in the lands and deal with them but ultimately on account of the land being vest with disputes, litigation and ultimately on account of the intervention of the search and seizure proceedings absolutely nothing came out of it and the assessee lost his money. However, the Tribunal presumed that the assessee made payment of Rs. 2.93 crores to Shri G.C. Patel in arriving at such finding which is not borne out from the record. It appears that the Tribunal has misdirected itself by observing that it cannot be reasonably inferred that by paying cash amount of less than 5% of the total value, the assessee would still be able to claim some rights in the land when there is absolutely nothing formal like cheque payment or any written agreement etc. in regard to this deal. The Tribunal, therefore in total disregard to the findings of fact recorded by the Assessing Officer supported by the material documentary evidence on record has only on the basis of the assumption and presumption, remanded the matter back to the assessing officer to decide the issue of allowing loss amounting to Rs.2.93 Crore for payment made to Shri G.C. Patel.

11.1 We are of the opinion that the very basis and foundation of claiming the business loss of Rs. 2.93 Crore by the assessee which requires finding of fact that the assessee has made a payment of Rs. 2.93 Crore. However, when there is no evidence on record with regard to the payment made by the assessee to Shri G.C. Patel even by any remote corroborative evidence in form of any noting on the seized papers found during the course of search except bare words of the assessee and when Shri G.C. Patel in his statement has denied this fact of receipt of cash amounting to Rs. 2.93 Crore from the assessee, there was no need to remand this issue back to the assessing officer, because for unaccounted transactions there cannot be any evidence for either payment or receipts of cash except what is found during the course of search and seizure by the Department or in form of other corroborative evidence, which may be collected after search and seizure and further the statement recorded of the concerned persons under the provisions of the Act, 1961. When the assessee claims that he has not received any benefit out of payment of unaccounted cash then onus would lie upon him to claim such payment as business loss. In the facts of the case, it appears that the Tribunal contrary to the evidence on record has made inferences on the basis of the assumption and presumption so as to remand the issue of the claim of the assessee of Rs. 2.93 Crore towards business loss.

11.3 In such circumstances, the Question No.2 is also answer in negative i.e. in favour of the Revenue and against the assessee and therefore, the assessee would not be entitled to claim Rs. 2.93 crores as business loss either as allowable expenditure under Section 37 (of Income Tax Act, 1961) or business loss under Section 28 (of Income Tax Act, 1961) with regard to the unexplained or unaccounted cash investment which did not result into tangible benefit to the assessee. As the Tribunal has remanded.

QUESTION NO.3

12. With regard to the Question No.3, the Tribunal has deleted the addition made with regard to the two land deals, namely, Amrakadam and Sangvilla. The facts of the case with regard to this issue are that the assessee failed in discharging his primary onus for identity of creditor, genuineness of the transaction, and creditworthiness of the creditor. The assessee claimed that the payment made to the farmers by him was an allowable expenditure. The Tribunal has recorded the factual position in the following paragraphs with regard to the issue of the said two land deals, which reads thus : “2. The date of commencement of search was 21.9.1995 and the date of receipts and documents u/s/ 158BD of the Act was 11.7.1996 and the assessment was completed on 30.9.1997. On the basis of search and seizure operations carried out at the premises of land brokers Shri Deepak Mehta and Suresh Patel on the 21st September, 1995. In the course of those proceedings u/s. 132 (of Income Tax Act, 1961), inter alia, some loose papers were found with rough jottings and in the statements recorded u/s. 132 (of Income Tax Act, 1961)/131 the said Shri Deepak Mehta and Shri Suresh Patel stated that the seized paper identified as Nos. 6; 21; 22 & 105 of Annexure-1 depicted the cash transaction in which assessee was involved as buyer/seller and/or broker. Thereupon statements of the 16.11.95 and finally on 7.2.96. It is significant to note that action u/s. 132 (of Income Tax Act, 1961) was not taken in assessee's case. Further, it had also transpired that one Shri G. C. Patel of the Ganesh Housing group was also involved in many transactions with the assessee but again significantly action u/s. 132 (of Income Tax Act, 1961) was not take at his place also. Perhaps some statements of Shri G. C. Patel were recorded but in the block assessment of this assessee there is no identification or even mention regarding versions of claims of the said Shri G. C. Patel let alone Department's finding there- on. Assessee specifically asked for the copies of inter alia the statements of Shri G.C. Patel but in vain. Department's stand is and was that those statements are not being used against the assessee.

3. The assessee in his statements, broadly speaking, admitted existence of almost all the transactions of those seized papers marked as No.6; 21; 22 and 105 but gave his own version and explanations in regard to their contents.

4. Then on 14.3.96 there were search and seizure operations u/s. 132 (of Income Tax Act, 1961) carried out at the premises of Radhe developers (India) Ltd. (RDIL for Short) and its officers, in the course of which loose papers with rough jottings were found and paper marked 106 of Annexure-A3 related, inter alia, to the land of Shantinagar Shaila Co.O\op. Housing Society. At one time Shri Ashish Patel, Managing Director RDIL stated to the effect that the jottings were for payment of Rs. 12.80 crores to the assessee and Vasant Adani etc. In regard to these papers and transactions assessee, right from the beginning, has denied his involvement.

5. Then, in the course of yet another search on 3.8.96 in the premises of L. T. Shroff some seized paper allegedly depicted deposit of Rs. 10 lacs in cash by the assessee and the existence of this deposit is also denied all along by the assessee.

6. The assessment order itself runs into 112 typed sheets and carries almost an equal number of sheets as Annexures being Xerox copies of some of the seized papers and the copies / synopsis of some of the recorded statements. Assessee's grounds of appeal and SOF run into 48 types sheets and are accompanied with three Annexures. Very detailed hearings took place before us in the course of which the learned Advocates for the assessee pressed and elaborated very succinctly the points taken in the grounds of appeal and SOF. The learned Sr. DR also very proficiently and empathically defended the assessment order. He furnished written submissions (in ten closely typed sheets) also primarily in the form of synopsis and a sort of summation of Department's stand. Very detailed submissions were made before us from both sides on each of the disputes and transactions involved but some common aspects of the respective stands run through almost all the disputed items. For facility of exposition it would be better to note first some of those common aspects”

12.1 The Tribunal, thereafter recorded its finding in respect of Amrakadam land in para Nos.12 to 16 of the impugned order, which reads thus :

“12. Bond land deal considered in the assessment order is the said Amrakadam land or Vejalpur Survey No.1196. This land was sold by the assessee to Saumya Construction and assessee has readily admitted a profit of Rs. 32.70 lacs apart from a sum of Rs. 5 lacs paid by him, earlier in point of time, to the original owners (being farmers) of that land. But vide para marked 4.4 (with sub-paras 4.4.1 to 4.4.4) on pages 22 to 25, for that addition made is of Rs. 87.22 lacs inclusive of Rs. 2.41 lacs for a smaller piece of land of 242 sq. yds. Assessee's stand in the matter is firstly that there was no separate payment of Rs. 2.41 lacs in regard to a smaller plot and secondly that all the cash and cheque payments were made by the ultimate purchaser M/s. Saumya Construction P. Ltd. of the original land owners who were farmers and in the process assessee earned only a profit of Rs. 32.70 lacs by way of rate difference. In the statement of facts accompany in the grounds of appeal paras marked 3.1 and 3.2 on pages 238 of the paper book give, inter alia, detailed tracts from the assessment order passed by the Assessing Officer (viz. DCIT, S.R.1 (of Income Tax Rules, 1962), Ahmedabad) in the case of Nila on 29.8.97. It is argued on behalf of the assessee that in that assessment order a detailed analysis of all the facts and figures has been done and therein is he that on the basis of jottings on the seized paper as well as appropriate analysis of the relevant part of the statements recorded it has to be held that assessee received in cash Rs. 84.81 lacs only after deal was finalised at Rs. 1,34,25,000. On this basis it pleaded that there was absolutely no justification or adding separately a sum of Rs. 2.41 lacs as referable some other small plot. Even in regard to the cash receipt Rs. 84.81 lacs it is submitted that the assessee passed on major part of it to the original land owners viz. farmers who admittedly received the cash payments also directly from the housing society and he made a profit of Rs. 32.7 lacs only.

13. In the written submissions, the Sr. DR has again emphasised the aspect that the assessee has not furnished confirmatory letters or even the complete addresses of the farmers to whom he claims to have passed on substantial cash out of Rs. 84.81 lacs received by him. It is further contended by the learned Sr. DR that such cash payment by the assessee to the farmers is nowhere recorded in the seized documents.

14. It is submitted by the learned Advocate of the assessee that the learned Sr. DR is not justified in emphasising that the complete address of the original owners were not furnished. It is pleaded that the cheque payments are made to the original owners and those persons are identifiable and at any rate the assessee had given the names and Vejalpur was not such a big place that the person could not have been identified; only if Department tried to locate/identify them.

The point made out is that the complete information is furnished by the assessee and Department has not tried to verify it at all. In regard to the confirmatory letters it is submitted that the original owners after receiving the full money were no more under the control of the assessee and hence Department should have attempted to verify the correctness of assessee's claim. Ultimately it is submitted that the profit shown in a sum of Rs. 32.70 lacs on a deal of a total sum of about Rs. 1.34 crores and that too within a short period of a couple of months is more than reasonable and deserves to be accepted.

15. We have considered the rival submissions and material on record. The seized papers relevant for this deal is No.6 of Annexure- A1 seized from the premises of the land broker Shri Deepak Mehta on 21.9.95. Copy is available as Annexure to the assessment order. It contains some calculations primarily by way of multiplications of two figures which claimed to be rates and measurements of the land in question and they are obviously the probable values for the land at some stage of negotiations. In the assessment order of Nila dated 29.8.97 the DCIT, S.R.1 (of Income Tax Rules, 1962), has analysed the contents and the statements in a much more thorough fashion than done by the Assessing Officer of this assessee in the assessment order dated 30.9.97. We agree with and uphold the findings given in that assessment order dated 29.8.97 that the cash component actually involved in this deal was Rs. 84.81 lacs and not Rs. 87.22 lacs. Further, there is lot of force in the plea taken on behalf of the assessee that the original owners were identifiable only if the Department had tried to do so and the assessee had done his best by providing the names particularly when admittedly the cheque payments were made to them directly. In the light of the trust of the arguments of he learned Advocates recorded in para-7 above and our observations thereon as contained in para-9 above we have no hesitation in holding that on the facts and circumstances of this case it is unreasonable to infer that the whole sum of cash payment of Rs. 84.81 lacs was pocketed by the assessee, the point is that the original of cash component passing on the land deals. Proceeding on this premise one has only to imagine and estimate what should be regarded as reasonable profit to the assessee. Moreover, the statement of the appellant is main basis for making this addition and accordingly Assessing Officer cannot be allowed to approbate and reprobate at a later stage – while he has relied upon those part of the statement which favour the revenue but conveniently ignored those portions which favour the assessee.

16. On the facts and in the circumstances of the case we hold that the profit admitted by the assessee is reasonable and hence the addition required in respect of this land deal has to be restricted to Rs. 32.70 lacs.”

41. Before us in the oral and written submissions respective stands are taken by the parties and our attention has also been drawn to that particular entry in the seized papers.

42. We have very carefully perused the contents of the relevant seized paper and also considered the rival submissions. On top of seized paper No. 105 of Annexure – A/1 found from the premises of Shri Suresh Patel on 21.9.1995 there is a sort of disjointed entry of Rs. 70 lacs declared to be pertaining to this land. We call it disjointed because before this entry there are three other entries whose total is taken but this particular entry of Rs. 70 lacs has been left out of that total though recorded along with those three entries and in the same fashion. We have already had an occasion of analysing the remaining entries of that sheet in connection with Silver Arc Land. We have dealt with the entries of that sheet as not indicative of any conclusive deals or receipts and payments but appear to be mere recordings for the understanding of position at a particular point of time. Coupled with the fact that these sheets are not found from the assessee's premises nor are they in his handwriting – they do not prove anything either. All the same the assessee has admitted in his statement that he paid Rs. 70 lacs but along with that he has also stated that he was only a broker in the land and passed on that money of Rs. 70 lacs after receiving it from the prospective buyers. The Department disbelieved this part of the statement of receipt from the prospective buyers and main reason given in the assessment order regarding this is in para (v) on page 64 to the effect that “the assessee could have named the person to whom the land was sold and other details of rate etc.” This assessee's argument on this aspect is that such questions were never put to the assessee and the only question asked was as reproduced on pages 63 and 64 of the assessment order. Therefrom it is clear that this question was not asked and hence the assessee cannot be faulted for not furnishing it. On the face of it the assessee earned a brokerage and it is common knowledge that brokers are not expected to investment their money. They bring the parties together and the prospective buyers pay to the prospective sellers may be through the broker. We have no hesitation in inferring that either from the seized paper or from the statement which constitute the only basis for Departments inference it cannot be sustained. The whole addition of Rs. 77.5 lacs is deleted.”

SUBMISSIONS OF THE REVENUE FOR QUESTION NO.3

12.3 Referring to the aforesaid findings of the Tribunal, the learned senior counsel for the Revenue submitted that Tribunal erred in deleting additions, though the assessee failed in discharging his primary onus. Attention was invited to the observation made by the Tribunal with regard to Amrakadam land in para No. 14 by rejecting the contention made on behalf of the Revenue that the complete address of the original owners were not furnished by observing that the cheque payments made to the original owners, who are identifiable and the assessee had given the names and Vejalpur was not such a big area that the person could not have been identified; only if the Department tried to locate/identify them. It was submitted that the Tribunal treated the names given by the assessee of farmers in Vejalpur land as the complete information.

12.4 The learned senior counsel for the Revenue relying upon such observation made by the Tribunal submitted that the impugned order is a perverse order as there is an erroneous appreciation of facts on record by excepting the contention of the assessee that only the names of the farmers in the Vejalpur area would amount to furnishing complete information by the assessee by drawing adverse inference against the Revenue that it has not tried to verify such information at all.

12.5 The learned senior counsel further pointed out that the Tribunal has erred in shifting the onus to prove on the Revenue when admittedly the assessee failed in discharging primary burden to give full details of the farmers apart from their names and the area.

12.6 It was therefore, submitted that the order of the Tribunal is absolutely perverse with regard to the finding in respect of the two land deals of Amrakadam and Sangvilla.

SUBMISSIONS OF THE ASSESSEE FOR QUESTION NO.3

13. On the other hand, the learned senior counsel appearing for the assessee submitted that the Tribunal after appreciation of evidence on record has given a finding of fact and the Revenue has failed to point out as to what material facts are omitted to be considered or any irrelevant material is considered to arrive at finding of fact by the Tribunal so as to come to the conclusion that the finding of fact arrived at by the Tribunal with regard to the two land deals at Amrakadam and Sangvilla are perverse.

13.1 The learned senior counsel has relied upon the following decision :

(i) Referring to the decision in the case of Commissioner of Income-tax v. Varinder Rawlley reported in [2014] 51 taxmann.com 524 (Punjab & Haryana), the learned senior counsel for the assessee submitted that the Punjab and Haryana High Court has held that when the assessee has entered into transaction by cheque and the details of information is given by the assessee then it was the duty of the Assessing Officer to directly make an inquiry and when no inquiry is made by the Assessing Authority to ascertain the factum of clearance of cheque from the bank, the Court held that the assessee has sufficiently discharged the burden which lie upon it to explain the nature and the source of credit entry appearing in his accounts and the burden clearly shifted in that case on to the Department to prove to the contrary.

(ii) Similarly, the Allahabad High Court in the case of Commissioner of Income-tax Meerut v. Smt. Sadhana Jain reported in [2014] 45 taxmann.com 432 (Allahabad) has held that Once the assessee furnishes the evidence in nature of cheques, their dates, amounts, particulars of banks and addresses of persons who were stated to have sold shares had been furnished by assessee, burden of assessee stood discharged.

13.2 It was therefore, submitted that in the facts of the case, the Tribunal has found that the complete information was provided by the assessee with regard to the payments made to farmers and the Tribunal has rightly held that the burden cast upon the assessee has been discharged as the Assessing Officer has failed to carry out any further enquiry to identify the person or has failed to take any further steps for identifying the person, it cannot be said that the impugned order of the Tribunal is perverse. It was therefore, submitted that as the Tribunal has come to the finding of fact on the basis of the materials on record, such finding cannot be said to be perverse or has been contrary to the evidence on record with regard to the two land deals Amrakadam and Sangvilla.

OPINION FOR Q.NO.3

14. Having heard the learned counsel for the respective parties and having gone through the materials on record, with regard to the controversy raised vis-à-vis, the Question No.3 to find out whether the findings given by the Tribunal are perverse or not, in view of the materials available on record, it would be necessary to refer to the findings arrived at by the Assessing Officer in respect of two land deals i.e. Amrakadam and Sangvilla.

14.1 The Assessing Officer with regard to the land deals at Amrakadam situated at Vejalpur, Survey No.1196 has observed in para 4.4 of the assessment order to make addition of Rs. 87.22 lacs for the A.Y. 1994-95 reads as under :

“4.4 Second land deal of Vejalpur land Survey No. 1196

4.4.1 In the show cause notice dt. 14-8- 1997 vide para 6 query was raised from the assessee as under :

“Other land transaction for land at FP No. 1196 Nr. Ramdev-pir-ni-tekro belonging to Amarkadam Co-operative housing society was entered between you and Shri Saurabh Shah of Saumya Construction Co. the deal was finalised at the rate of Rs. 1125 per sq. yd. for area of 12116 sq. yd. along with one more land pieces of 242 sq. yd. at total consideration of Rs. 138.71 lacs. You have stated to have received Rs. 90.250 lacs in cash and remaining amount of Rs. 48.46 lacs is stated to be receivable by cheque. Shri Shaurabh Shah in his statement 8-12-95 and 9-1-1996 has confirmed the delay and payment in cash. IN your statement dt. 7-2-1996 reply to Q.No.3 you also reconfirmed the deal in the circumstances. Your are required to show cause as to why cash received of Rs. 90.25 lacs should not be added to your income as undisclosed income. Further please produce evidence and entries regarding cheque payment received from this land transaction”. 4.4.2 The assessee replied the show cause notice vid para 4.2 to para 4.5 vide his letter 11-9-95, the relevant portion is extracted as under :

“4.2 (d) That, in the same statement, upon being so asked, I have there and then stated that the rights in the land in question had been acquired by me only about a month before the deal of sale to Saumya Construction Pvt. Ltd. was struck and that except for the initial payment of Rs. 5 lacs which I had to the land owners in cash, all the remaining payments that had to be made to them in cash had been made out of the cash payments received by me from Saumya Construction Pvt. Ltd. Since the time lag between the acquisition and sale was very short, the payment by cheques to the land owners came to be made directly by the ultimate purchaser Saumya Construction Pvt. Ltd. through the medium of the Society.

4.2. (e) That, as explained there and then in my aforesaid statement, I had really got only the surplus of Rs. 32.70 lacs which this transaction had generated – because the buyer for the land which had been agreed to be acquired from its owner at Rs. 851 per sq. yd., could found only within a matter of one month @ Rs. 1125 per sq. yd. so that the entire payment – both by cheques and cash, that was payable to the landowners was arranged directly form the buyer to the landowners.

4.4 A perusal of the above would also satisfy your good selves the reason for there being minor differences in the figures which have been mentioned in your letter presumably on the basis of a cursory look at the concerned material.”

4.4.3. In course of discussion on 15-09-97 the Authorised Representative of assessee was requested to furnish complete names and address, date(s) and payment to farmers along with their confirmation. In reply there to the assessee has simply furnished a list of names according to which recorded payment was made. During hearing on 19-09- 97 it was stated by Authorised Representative present that, nothing further was to be added / submitted.

4.4..5 In view of above facts and as admitted by assessee himself addition of Rs. 84.81 is liable to be made to the total income of the assessee. Here it is worthwhile to mention that Shri Saurabh Shah in his statements recorded by the ADIT admitted Rs. 84.81 lacs as payments in cash to Shri Manoj Vadodariya on account of land S.No.1196. As stated earlier one more piece of land 242 sq. yd. was agreed to be sold in cash at lumpsum amount of Rs. 2,41,000/-. Assessee has not furnished any comment on this land transaction hence considering assessee's own admission of Rs. 87 lacs in his statement and other facts of the case as apparent from the seized papers total addition of Rs. 87.22 lacs (84.81 + 2.42) is made to the income (which includes Rs. 84.81 received from Shri Saurabh Shah + 2.41 lakhs received on land transaction pertaining to plot of 242 sq. yd. Addition of Rs. 87.22 lacs is therefore made in the assessment year 1994-95 in the hands of the assessee on substantive basis.

(ADDITION A.Y. 1994-95 – RS. 87.22 LACS)”

14.2. Similarly with regard to the land deals of Sangvilla land bearing Final Plot No.259, the Assessing Officer has observed as under :-

“A) SANGVILLA LAND BEARING F.P. NO. 259. i) The first entry on the front side of page, 105 refers to payment made of Rs. 70 lacs in cash by Shri Manoj B. Vadodariya to Shri Govind C. Patel for purchase of land known as Sangvilla land bearing F. P. No. 259. The narration on the page is as under:

“70 – 259 – Pete Chukvya Manoj”. This narration as explained by Shri Suresh Patel in Answer to Q. 28 of statement dated, 22-9- 95 is as under :

i) “The first entry of 70 on front side of page. 105 refers to payment of Rs. 70 lacs in cash made by Shri Ahmedabad (Director of Neela Housing Infrastructure Pvt. Ltd.) to Shri Goving C. Patel of Ganesh Housing Corporation for purchase of land for Sungilla Society, F. P. No. 259. The land is situated Nr. Bodakdev, No. Judge's Bunglow.” (Emphasis added)

ii) In the statement dt. 30-10-1995 in reply to Q.4 Shri Suresh Patel was specifically asked to state the status of land of F.P. No. 259 as on that date. In reply to Q,4 Shri Suresh Patel stated as under : “There is a litigation in this land hence it is still open plot of land. Shri Manoj Vadodariya has approx., paid Rs. 70 lacs for this land. No cheque payment is made.” (Emphasis added)

ii) In view of this clear position the assessee was asked to explain the soruces of the investment vide para 8 of the show cause notice dated, 14-8-1997 under :

“Para 8 : - Page 105 : seized from the residence f Suresh Patel contains a summary of land transaction between you and Govind C. Patel. An amount of Rs. 70 lacs stated as paid by you in cash to Govind Patel for Sangvilla land was found entered. Please explain the source of payment by you.”

iii) The assessee replied vide para No.11 of 11-9-1997 as under :

“Para.11.2 : In so far as first transaction of Rs. 70 lacs is appearing on seized paper 105 on which I have to draw your attention to the relevant portion of may statement recorded on 14- 11-1995 attended vid A.22. What is that shows is the true nature of transaction.”

iv) The assessee's reply is not clear and he has simply referred to reply to Q.11 (2) as contained in Annex. 22 of his letter, and hence vide order sheet entry dt. 15-9- 1997, the assessee was again asked to explain the sources of payments of Rs. 70 lacs as clearly coming out from the seized page 105 and its narration and as explained by Shri Suresh Patel and stated by the assessee in reply to Question No.7 & 8 of statement dtd. 14-11-95 and 07-2-96 respectively. the assessee has not made any further submission and submitted on 19-9- 1999 that they have nothing further to add is addition to whatsoever have been said in the written submissions. This Clearly shows the attitude of assessee during the assessment proceedings and evasive replies about clear transactions. The relevant portion of statements dt. 14-11-1995 is reproduced here under : 1m10 “Qn. Please state as per your money, how many transactions of land you have entered through Shri Suresh Pate.”

Ans. I entered into following transactions through shri Suresh Patel who is broker of Shri Govind Patel of Ganesh Housing Society.

i) Aram Society --

ii) Bodakdev F. P. No. 259

“I and Suresh Patel acted as brokers in the Bodakdev F.P. No. 259 land. I further sold this land through another broker. the sale consideration was received by me and out of that I paid Rs. 70 lacs to Shri Govind C. Patel through Shri Suresh Patel. We were to receive brokerage of Rs. 15 lacs which is pending till date. My share of brokerage was Rs. 7.5 lacs and share of Sureshbhai in the brokerage was Rs. 7.5 lacs.

v) The above admission makes it further clear that payment of Rs. 70 lacs was made to Shri Govind C. Patel for the land in question. The assessee could definitely name the person to whom it was sold, to any case he not give the address of the purported buyer and at what rate and when the land was sold. No confirmation was furnished from the alleged purchaser also. Further no attempt at all has been made to furnish clarification, details or evidence to substantiate and clarify this matter even during assessment proceedings. shri Suresh Pate in his statement has clearly and categorically stated that the assessee paid Rs. 70 lakhs in cash for purchase of land to Shri G. C. Patel. As further sale of land and receipt of money is totally unsubstantiated and this claim is rejected. It is accordingly held that payment of Rs. 70 lacs is made by Shri Manoj Vadodariya out of his undisclosed income. An addition of Rs. 70 lacs is made as unaccounted investment in the Asst. Year 96-97. Further Shri Manoj Vadodariya has himself stated that he was to receive brokerage of Rs. 7.5 lacs on the deal, hence on accrual basis an addition of Rs. 7.5 lacs is made as unaccounted income on the transaction of F. P. No. 259 as referred above. (Unaccounted investment of Rs. 70,00,000/- A.Y. 96-97:

Unaccounted income of Rs. 7.5 lacs A.Y. 96-97)”

14.4 Similarly with regard to the Sangvilla land deal, the Tribunal in para 42 has branded the entry in the ceased papers as disjointed on the ground that the entries of that sheet at Annexure-A/1 found from the premises of Shri Suresh Patel on 29.09.1995 is of Rs. 70 lacs is not indicative of any conclusive deal or receipt in payments but appears to be mere recordings for the understanding of position at a particular point of time. It is not possible to understand on what basis the Tribunal has drawn such inference in absence of any corroborative evidence in support of such findings when the assessee has admitted in his statement that he paid Rs. 70 Lakhs after receiving the same from the prospective buyer, but such statement was not believed by the Assessing Officer as the assessee failed to provide the name of the person to whom the land was sold as well as the rate at which such land was sold. The Tribunal further has erroneously and perversely held that as question was not asked to the assessee, the assessee cannot be faulted for not furnishing the details and the person to whom the land was sold and only because the assessee was a broker and he was not expected to make investment of his money. It appears that such findings are arrived at by the Tribunal only on the basis of the presumption and assumption and the findings given in para 42 are perverse as the same are not based on the materials on record but are arrived at after taking into consideration the irrelevant factors that the broker only bring the parties together and the prospective buyers pay to the prospective sellers may be through the broker. The Tribunal has therefore; committed error in drawing inference that either from the seized papers or from the statement which constitute the only basis, the addition cannot be sustained.

14.5 We are therefore of the opinion that the Tribunal has arrived at perverse findings contrary to the evidence on record in case of two land deals of Amrakadam and Sangvilla without there being any evidence on record to arrive at such findings to delete the addition made by the Assessing Officer, which is supported by the cogent evidence on record.

14.6 In that view of the matter, the Question No.3 is also answered in negative i.e. in favour of the Revenue and against the assessee, holding that the order of Tribunal is perverse and contrary to the evidence on record in case of Amrakadam and Sangvilla land deals based on no evidence at all.

15. In view of the above, the Reference stands disposed of accordingly as allowed as all the three questions referred are answered in favour of the Revenue and against the assessee.

(J. B. PARDIWALA, J)

(BHARGAV D. KARIA, J)

LEGAL REFERENCES

Section 34 Section 2 Section 4 Section 3 Section 70 Section 37 Section 132 Section 28 Section 69B Section 1988 Section 256 Section 158BC Section 256(2) Section 158BD Section 1985

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<a href="https://thakurani.sgp1.digitaloceanspaces.com/media/data/6207.pdf" style="color: rgb(0, 102, 204);" target="_blank">Get the full picture - access the original judgement of the court order here</a><h3>Case Name:</h3>Commissioner of Income Tax Vs Manojbhai Bhupatrai Vadodaria (High Court of Gujarat)R/Income Tax Reference No.1 of 2001Date: 21st August 2020<h3>Key Takeaways:</h3>1. The court examined the correctness of the Tribunal's findings on the set-off of unaccounted cash payments against unaccounted cash receipts, the allowability of claimed business losses, and the additions made in respect of two land deals. 2. The court found the Tribunal's findings on the land deals to be perverse, as the Tribunal had not properly considered the evidence on record and had drawn inferences based on irrelevant factors. 3. The case highlights the importance of properly discharging the burden of proof in income tax disputes, and the court's role in ensuring that the Tribunal's findings are based on a proper appreciation of the evidence.<h3>Issue:</h3>Whether the Tribunal's findings on the set-off of unaccounted cash payments against unaccounted cash receipts, the allowability of claimed business losses, and the additions made in respect of two land deals were correct.<h3>Facts:</h3>- The assessee, an individual and dealer-cum-broker in lands, was assessed under Section 158BD (of Income Tax Act, 1961) based on seized documents and statements recorded during a search and seizure operation.- The Assessing Officer completed the assessment for the block period, determining the assessee's total income as Rs. 34,63,47,179.- The assessee appealed against the assessment order before the Income Tax Tribunal, which allowed partial relief by deleting some of the additions made by the Assessing Officer.- Both the Revenue and the assessee filed reference applications against the Tribunal's order, which were disposed of by the Tribunal.- The Revenue then moved an application under Section 256(2) (of Income Tax Act, 1961), and the court directed the Tribunal to refer the questions of law for consideration.<h3>Arguments:</h3>- The Revenue argued that the Tribunal erred in allowing the set-off of unaccounted cash payments against unaccounted cash receipts, and in deleting the additions made in respect of the two land deals (Amrakadam and Sangvilla).- The assessee argued that the Tribunal's findings on the land deals were correct, as the assessee had provided sufficient information to discharge the burden of proof.<h3>Key Legal Precedents:</h3>- S. Kuppuswami Mudaliar v. CIT (1964 53 ITR 520)- CIT v. Devi Prasad Vishwanath Prasad (1969 72 ITR 194)- Commissioner of Income-tax v. President Industries (2002 258 ITR 654)- Commissioner of Income-tax (Central) Cochin v. P.D. Abraham @ Appachan (2013 349 ITR 442)<h3>Judgment:</h3>- The court found the Tribunal's findings on the land deals to be perverse, as the Tribunal had not properly considered the evidence on record and had drawn inferences based on irrelevant factors.- The court held that the Tribunal had committed an error in shifting the burden of proof to the Revenue, when the assessee had failed to discharge the primary burden of providing complete information about the land deals.- The court set aside the Tribunal's findings on the land deals and remanded the matter back to the Assessing Officer for a fresh adjudication.<h3>FAQs:</h3>Q1. What was the main issue in this case?A1. The main issue was whether the Tribunal's findings on the set-off of unaccounted cash payments against unaccounted cash receipts, the allowability of claimed business losses, and the additions made in respect of two land deals were correct. Q2. What were the key legal precedents cited in the case?A2. The key legal precedents cited were S. Kuppuswami Mudaliar v. CIT, CIT v. Devi Prasad Vishwanath Prasad, Commissioner of Income-tax v. President Industries, and Commissioner of Income-tax (Central) Cochin v. P.D. Abraham @ Appachan. Q3. What was the court's decision?A3. The court found the Tribunal's findings on the land deals to be perverse, as the Tribunal had not properly considered the evidence on record and had drawn inferences based on irrelevant factors. The court set aside the Tribunal's findings on the land deals and remanded the matter back to the Assessing Officer for a fresh adjudication. Q4. What was the key issue with the Tribunal's findings on the land deals?A4. The court found that the Tribunal had committed an error in shifting the burden of proof to the Revenue, when the assessee had failed to discharge the primary burden of providing complete information about the land deals. Q5. What is the significance of this case?A5. The case highlights the importance of properly discharging the burden of proof in income tax disputes, and the court's role in ensuring that the Tribunal's findings are based on a proper appreciation of the evidence. <img class="image-in" id="1" src="https://thakurani.sgp1.digitaloceanspaces.com/media/logos/HCWordToWordOrder.jpeg"/> 1. This reference is made at the instance of Revenue under Section 256(2) (of Income Tax Act, 1961), 1961 (for short the 'Act 1961).

“1. Whether in the facts of the case, the ITAT was right in law in holding
that the assessee was entitled to set off gross unaccounted payments on
certain transactions against unaccounted receipts for computing unexplained
investment made by him in accordance with section 69B (of Income Tax Act, 1961) of the I.T Act ? 
2. Whether in the facts of the case, the
ITAT was right in law holding that
unexplained and unaccounted cash
investment which did not result into
tangible benefit was allowable
expenditure under section 37 (of Income Tax Act, 1961)
as business loss under section 28 (of Income Tax Act, 1961) ? 
3. Whether the order of the ITAT is not
perverse as being contrary to the
evidence on record or as in the case
Amrakadamb land deal with Sangvilla land
deal based on evidence at all ?”

3. The Tribunal accordingly forwarded the
statement of case along with paper book for
opinion of this court on the above questions of
law on the facts of the case stated therein.

4. The short facts of the case are that the
assessee, who is an individual and dealer-cum-
broker in lands was assessed under Section 158BD (of Income Tax Act, 1961) on the basis of the seized
documents and various statements recorded under
Sections 132 (of Income Tax Act, 1961) and 131 (of Income Tax Act, 1961), 1961 during the
course of search and seizure operation on
21.09.1995 at the premises of two other land
brokers one Shri Deepak Mehta and other Shri
Suresh Patel.

4.1 The Assessing Officer completed assessment
for the block period determining the total income
of Rs.34,63,47,179/- vide order dated 30th
September 1997.

4.2 The assessee being aggrieved preferred an
appeal before the Tribunal as per the provision
of Section 158BC (of Income Tax Act, 1961) read with Section 256 (of Income Tax Act, 1961).

4.3 The Tribunal vide order dated 12th June 1998
allowed partial relief to the assessee by
deleting some of the additions made by the
Assessing Officer.

4.4 The Revenue as well as the Assessee both
filed Reference Applications against the order of
the Tribunal, which were disposed of by the
Tribunal vide order dated 30.11.1998 in Reference
Application No.660 and 69 (of Income Tax Act, 1961)6/Ahd/1998, rejecting
both the Reference Applications.

4.5 The Revenue moved an application under
Section 256(2) (of Income Tax Act, 1961) before this
Court, wherein this Court directed the Tribunal
to refer the above questions of law for
consideration. 
QUESTION NO.1 
5. The Question No.1 pertains to set off of
unaccounted cash payments against unaccounted
cash receipts of the assessee. The assessing
officer has referred to the statement of assessee
recorded by the Department in Para 4.3.2 of the
Assessment Order, wherein it is stated that the
assessee admitted with regard to the two
transactions of land near Ramdev-pir-no-tekro
near Satellite area in Ahmedabad through Shri
Dipak Mehta with Shri Saurav Shah with Saumya
Construction, which were the same as stated by
Shri Dipak Mehta and as per his seized papers
showing the area of land as approximately 18538
sq.yds. and the land was sold at the rate of
Rs.1988 per sq. yd., which was in the name of
Jitendranagar Co-operative Housing Society for
total consideration for Rs.3.68 Crore. It was
stated by the assessee that initially it was
decided to get Rs.70 Lakhs by cheque and
remaining by cash but as per final settlement
amount was agreed for Rs.3.5 crores and stated to
have received Rs.2.83 crores in cash, out of
which Rs.2.53 crores was received through Shri
Dipak Mehta in cash and cheque payment must have
been made to the society. With regard to the
second land deal transaction for final plot
No.1196, the assessee sold it at the rate of
Rs.1125 per sq. yd. for the total area
approximately 11933 sq. yds. The deal was
finally settled for total consideration of
Rs.1.35 crores and out of which approximately
Rs.48 Lakhs was paid by cheque to farmers and
land owners and remaining Rs.87 lakh was received
in cash. When specifically confronted with two
seizes pages and statement of Shri Dipak Mehta in
Question No.4 and 5, the assessee stated that
contents of these pages and explanation of Shri
Dipak Mehta appears to be correct with minor
variations.

5.1 The assessing officer did not accept the
explanation given in the reply furnished by the
assessee as observed in Para 4.4.4 of the
assessment order, which reads as under: 
“i) Shri Dipak Mehta in his statements
categorically stated that full
considerations in cash Rs. 90,25,069/- was
agreed with the assessee. 
ii) The assessee has admittedly accepted
that the transaction was held between him
and Saumya Construction Co. and as replied
in his statement he has received Rs. 87 lacs
in cash and Rs. 48 lacs were paid by cheque
to the farmers directly by Saumya
Construction through society. 
iii) The assessee was asked to file the
confirmation letters of alleged cash
payments to the farmers but he has neither
submitted the addresses of the farmers in
full and nor confirmation letters in support
of cash payment to the farmers for purchase
of land at the rate of 851 per sq. yd.
including cheque payment has been filed. 
iv) The amount of Rs. 32.70 lacs claimed as
surplus in the hands of the assessee is not
acceptable as Shri Saurabh shah, Shri Dipak
Mehta and assessee himself had admitted to
have paid and received cash payment
respectively. Since no evidence for further
cash payment to the land owners is
furnished, therefore assessee's contention
is not acceptable. 
v) No specific date of payment of amount
and other corroborative evidences for
subsequent payments to farmers in cash are
given hence assessee's plea is unfounded and
far from truth and apparently has been
advanced to reduce the undisclosed income as
done on one pretext or another in respect of
other land deals also and hence self serving
claim is rejected.” 
5.2 The Assessing Officer rejected the claim
of set off made by the assessee in para 10 of the
assessment order, which reads thus: 
“10. CLAIM OF SET-OFF 
10.1. The assessee in his writ submission
filed has not pressed any claim for set off
of amount received against land deals,
towards undisclosed investment made. The
assessee despite specific requisition did
not deliberately furnish the total wealth
statements as on 31-3-1993, 31-3-1994, 31-3-
1995 and 21-9-1995. The assessee has not
furnished any other details or particulars
about availability of funds from such
unaccounted land deals in the course of
present assessment proceedings. It is
settled position of law that for pressing
any claim based on facts, the onus lies on
the assessee to furnish the basic and
primary facts. Hence in absence the same
the claim cannot be at all considered.
Further still transaction for which
undisclosed income has been added and
additions have been made for unexplained
investment, it is to be noted that the
amount of Rs. 2.53 crores offered to be
taxed in his hands concerning land deals at
Ramdev-Pir-No-Takro between Nila Housing &amp;
Infrastructures Pvt. Ltd. And Samuya
Construction Co. Ltd., the amount has been
protectively taxed in the hands of assessee
and substantial addition has already been
made in the hands of the company. Thus those
funds are prima facie not available for
planning any further investments made by the
assessee in his individual hands business
and has been accordingly disallowed /
restricted for reasons discussed in the
Asst. Order passed. 
10.2. Coming to the other investment as
emerging from the appreciation of seized
papers most of the investments have been
made during the F.Y.1994-95. On money
receipts pertaining to the second land deal
of Ramdev-pir no -Tekro were received
during the F.Y. 1993-94 The entire on money
payment from RDIL at Rs.12.80 crores has
been received only from April 1995 onwards
till September, 1995. Similarly the
undisclosed income determined for investment
and profit in remaining two land deals at
325, 292 have been also determined for part
of search year falling in F.Y.95-96 and the
brokerage amount, according to assessee’s
own version was not received and was
receivable only. Thus on prima facie merits
also assessee is not entitled to any set off
of unaccounted income against the
unexplained investment made. Further, it is
to be clarified that considering the volume
of huge land deals entered into by assessee
it cannot be automatically presumed that
Income received by way of on money receipts
was available for investment in the land
deals and was not otherwise invested.
Hence, the assessee is not entitled to any
claim of set off and all the income as well
investment determined are liable to be
considered without any set off against each
other. 
11. UNDISCLOSED INCOME OF ASST. YEAR 1995-96 
11.2 So also unexplained cash credit has
been determined at 11.85 Lacs as the
assessee has failed to discharge his onus
for establishing the identity of the
creditors, genuineness of transactions and
credit worthiness of creditors as per
requirement of section 68 (of Income Tax Act, 1961) and hence, same
has been accordingly order. Accordingly
interest claimed on the same of
Rs.1,40,549/- has also been held to be
inadmissible. 
11.3. The overriding provisions of 158 BD
required that income for the asstt. year for
which return has not been filed till the
date of search and the date has expired,
entire income shall be treated as
undisclosed. The due date in the case of
assessee is prima facie 31.8.1995 as noted
from his return of income for A.Y.1994-95
and prima facie books of accounts of his
proprietary concern are not required to be
audited. Hence, the entire income for
Asstt. Year 1995-96 is required to be
treated as undisclosed income for the
purpose of Block Assessment Proceeding as
determined in the Asstt. Order passed
U/s.143(3) (of Income Tax Act, 1961) for A.Y. 1995-96.

5.3 The Tribunal however, allowed the claim
of the assessee for adjustment of subsequent
payments against the earlier receipts by
observing in para 46 of the order, which reads
thus: 
“46. In para 10 on pages 101 and 102 of
the assessment order heading given is “Claim
of Set Off” and it is rejected. The crux of
the matter is that the assessee has claimed
that he has admitted to the receipt of
certain sums in cash and also to the
payments of certain other sums in cash. The
Assessing Officer has drawn inference in
regard to receipts and payments of
individual items but in the end has taxed
the gross receipts plus gross payments. He
has not allowed adjustment of subsequent
payments against the earlier receipts of
cash which becomes otherwise available with
the assessee. It means that assessment
order proceeds on the footing that when the
assessee makes a payment his cash balance is
Nil and, therefore, whatever he has paid he
has done so from his income from undisclosed
sources on the respective date(s). The
assessee's contention is that he has
admitted to the existence of cash receipts
and payments and a reasonable view demands
that subsequent payment should be presumed
to be made out of the cash available from
the earlier receipts, if any. In Income-tax
quarters it is generally referred to as cash
flow statement and it will not be out of
place to mention that even in the clubbing
of transactions of Hundi loans the
Department used to prepare such cash flow
statement and then tax the peak amount. We
are mentioning it because in those cases
ledger accounts existed in different names
and consolidation of all the ledger accounts
meant that the repayments made to one of the
alleged creditors was regarded available to
this very assessee for introduction of
credit on a subsequent date in another name.
The assessee's case obviously stands on a
better footing that they are undoubtedly
admitted and/or treated as his own moneys
received by him and paid by him. So in
principle it is difficult to uphold the
Department's view. We are not impressed by
the plea mentioned in para 10.2 on page 102
that income received by way of on-money
receipts cannot be regarded as available for
investment in land deals. The Assessing
Officer suspects that it was “otherwise
invested”. In our considered opinion, in is
not reasonable or judicious approach. There
cannot be any reasonable cause for rejecting
the assessee's claim of adjustment of
subsequent payments against earlier
receipts. Accordingly ground No.15.1 &amp; 15.2
are allowed.” 
SUBMISSIONS OF REVENUE FOR Q.NO.1 
6. The learned senior advocate Mr. M.R. Bhatt
assisted by Ms. Mauna Bhatt, the learned standing
counsel appearing for the Revenue submitted that
no peak credit theory would be applicable and the
entire unaccounted gross receipts are to be taxed
along with the gross payments/expenses because,
though the onus lies on the assessee, he failed
in providing any evidence and in absence of any
evidence indicating payments made/expenses
incurred by assessee, theory of peak credit
cannot be applied. It was submitted that there
is no nexus between the expenses and receipts and
therefore, telescoping could not be proved as the
theory of telescoping would be applicable when
there is nexus between unaccounted receipts and
unaccounted expenses.

6.1 It was submitted that the assessee is not
into the business of trading where the activity
of sale and purchase is involved where there can
be presumption of incurring expense despite no
evidence.

6.2 It was submitted that for example, the
evidence available on record indicates that Rs.20
Crore was received by the assessee between
specified period which was not recorded in the
books of accounts of the assessee and therefore,
the same would be unaccounted receipt, whereas
the evidence available on record indicates
payments made during that period which were
unaccounted payments/expenses, therefore, in such
case, on account of having nexus between receipt
and payment/expenses, theory of telescoping would
be applicable. However, the attention of the
Court has been invited to the activities of the
assessee as recorded by the Assessing Officer to
point out that the assessee was dealing with real
estate especially land either on his own or as a
middleman-broker, or rendering various land
related services, which may be desired by the
investors like clearances under Land Ceiling Law,
N.A. permission etc. It was pointed out the
assessee was a sophisticated broker in real
estate as per his own statement in his letter
dated 11.09.1997 and therefore, in absence of any
evidence showing nexus or co-relation between
unaccounted cash receipts and payments, assessee
cannot be given benefit of telescoping.

6.3 The learned senior counsel further
referred to the non-cooperation of the assessee
during the assessment proceedings as recorded by
the Assessing Officer by detailed discussion with
regard to various land deals of the assessee. The
learned counsel therefore, submitted that though
the onus lies on the assessee, the assessee
failed in providing any evidence with regard to
the expenses/payments made and therefore, the
unaccounted cash receipts and payments are
required to be taxed under Sections 69B (of Income Tax Act, 1961) and 69C (of Income Tax Act, 1961),1961 as unexplained
investment/expenditure .

6.4 The learned advocate submitted that the
Tribunal has not considered the provisions of
Sections 69B and 69C of the Act, 1961 in proper
perspective and in support of his contentions
reliance was placed upon the following decisions:

(i) Madathil Zainuddin vs. Commissioner of
Income-tax, Kochi reported in [2014] 44
taxmann.com 241 (Kerala), wherein the High Court
of Kerala has held as under: 
“'7. The Tribunal proceeded to analyse the
facts on record and opined that the stand of
the assessee was different from time to
time, so also opined assessee was not even
able to establish that the source of income
was from gold business. If the first stand
of the assessee that funds were transferred
from Mumbai to Kerala through bank accounts
were to be believed, said amount cannot be
his amount. But it is also surprising to see
that he admitted income of Rs.50 Lakhs in
his bulk return as peak credit. This would
only go to show; though he tried to
establish the transfer of funds from Mumbai
to Kerala it was not properly explained.
Then coming to stand of the assessee, the
assessee failed to bring on record any
material to substantiate his stand and the
same cannot be believed according to the
Tribunal for the following reasons which are
extracted below. The claim of the assessee
does not appear to be true. 
(a) If the assessee had really carried
on trading in gold biscuits, he could
have at least tried to reconcile the
quantity details of gold vis-à-vis the
deposits found in the bank accounts. 
(b) Presuming for a moment that the
deposits represent sale value of gold,
we notice that the deposits are always
in lakhs that too in round figures,
which would not be so in practical
situations. There is also wide variation
between two deposits, which would not be
normally so if the assessee is carrying
on trading activity. 
(c) From the copy of the three bank
accounts placed in the paper book, we
notice that the assessee has received an
aggregate deposit of Rs. 1.23 crores in
the month of December 2001. Even if the
initial deposit of Rs. 12 lakhs each
(Total Rs. 24.00 lakhs) received in
Account Nos.34 and
11804 is considered as the capital of
the assessee, it does not commensurate
with the amount declared by the assessee
in his block return, i.e. up to 31-3-
2001. The assessee has declared only a
sum of Rs. 8.00 lakhs only as
undisclosed income. 
(d) In the month of December, 2001, we
notice deposits of Rs 25.00 lakhs and
Rs. 50.00 lakhs, but there after the
deposit amount was in the range of below
ten lakhs only up to 20-3-2002.
Thereafter, there is a deposit of big
amount, i.e., Rs. 24.00 lakhs on
23.3.2002. The last deposit was Rs.
20.00 lakhs made on 6.4.2002. The
assessee has not explained the reasons
for stopping the alleged gold trade
thereafter. 
Paragraph 14 is the actual opinion of the
Tribunal which deals with the details
furnished by the assessee in the cash flow
statement. The Tribunal made this exercise
in order to understand the claim of the
assessee whether the income declared by the
assessee in various years including peak
credit amount can be taken as source for the
cash of Rs. 65 Lakhs seized by the police at
Chennai. The cash flow statement with
reference to the financial year 2000-01
shows Rs. 3 Lakhs followed by Rs 2 lakhs in
the financial year 2002-03 indicating that
Rs. 2 Lakhs was from brother Hussein in the
business. There were no details with regard
to the nature of business. On the other
hand, in the first letter addressed to the
Deputy Director of Income Tax this Rs. 65
Lakhs was given to Mr. Azeez to purchase
gold biscuits for the purpose of starting
business by his brother and others. In other
words, it was not the amount pertaining to
his gold business but an amount for the
purpose of gold for his brother's business.
This is a relevant fact that has to be taken
note of. Having regard to this stand of the
assessee and also unexplained income
reflected in the cash flow statement, the
Tribunal was justified in not placing much
reliance on the cash flow statement
furnished by the assessee, as it was a self
serving one without supported by any regular
bank account and documents. 
8. Then coming to the statement of assessee,
the income of Rs. 1 Lakh each declared in
the years relevant to the assessment years
1997-98 and 1998-99. there is doubt
expressed by the Tribunal whether that Two
Lakhs was still remaining with the assessee
after a gap four or five years according to
us it is a genuine doubt. With regard to the
declaration of peak credit of Rs. 50 Lakhs,
the Tribunal was Justified in saying, by
operation of law as legal fiction provided
under Section 68 (of Income Tax Act, 1961) and 69 in the absence of
proper explanation of the assessee relating
to bank transactions Rs. 50 Lakhs becomes
taxable. Then the question is whether the
amount of Rs. 65 Lakhs in the hands of the
assessee in December, 2012 would represent
cash credit amount in the banks when the
assessee fails to explain the source of
income so far as the bank account in the
light of the fact that what exactly the
business of the assessee was not proved. In
the absence of documents supporting such
contention, the Tribunal was justified in
continuing the opinion of the appellate
authority that all the amounts shown in the
bank accounts are entirely different from
the amount of cash Rs. 65 Lakhs found in the
hands of the assessee in December, 2012,
because if he was really dealing with gold
business, it is hard to believe that he was
keeping Rs. 65 Lakhs idle with him for a
period of more than nine months, that too,
to start business for his brother in gold as
explained in the letter. First letter
immediately addressed after seizure of the
gold becomes very relevant. If he was
dealing in the gold business he would have
declared so in the said letter. But his
explanation regarding the bank
account was that he acted only as an agent
for transferring funds from Mumbai to Kerala
through is bank accounts.” 
(ii) Kahan Udyog v. Commissioner of Income-tax
reported in [2013] 38 taxmann.com 261(Delhi),
wherein the Delhi High Court analyzing the
provisions of Section 69C (of Income Tax Act, 1961) upheld
the addition made by the Assessing Officer in
absence of any details furnished by the assessee
in that case with regard to the expenditure
incurred, the Delhi High Court has held as under: 
“3. In the block assessment order dated
29th November, 1996, the Assessing Officer
has referred to various seized papers in
respect of unaccounted sales and unaccounted
expenditure. These were inventorised. It was
found that these transactions were not
reflected in the regular books of accounts.
Before the Assessing Officer, the appellant
had submitted that the difference between
the excess of expenditure over receipts,
should be brought to tax and treated as
undisclosed income and the two amounts
should not be separately taxed. Assessing
Officer in the present case did not tax the
unaccounted sales and has only taxed
unaccounted
expenses/expenditure/withdrawals. Before the
tribunal, similar plea was raised but was
rejected after making reference to the order
of the tribunal in the case of Siddhartha
Woolen Mills [IT Appeal No. 59 of 2000,
dated 25-7-2013]. We have dismissed the
appeal of the assessee in the case of
Siddhartha Woolen Mills (supra). In the
present case, we notice that the tribunal
has given relief to the extent of Rs.
1,50,000/- and the Assessing Officer has not
made any separate addition on account of
profits from unaccounted sales. It is
recorded in our order dated 25th July, 2013
in the case of Siddhartha Woolen .Mills
(supra) that the expenditure incurred was on
account of electricity, petrol, tea pool,
etc. and the names of the persons and
details why the expenditure was incurred had
not disclosed and furnished. The appellant
has not, in the present case, furnished
details or explained nature and purpose
behind the "expenditure". Some expenses have
been incurred towards kabadi etc. Names of
persons do find mention but the nature of
activities undertaken why and for what
purpose the payment was made, are not known.
It was for the appellant assessee to produce
relevant material or produce the said person
to justify the payment and show and
establish that the expense was not personal
in nature but related to or was pertaining
to unaccounted business. No one mentioned in
the list had appeared before the Assessing
Officer to testify and explain the nature
and character of the said payments. The
appellant has accepted that these
transactions were not recorded in the books.
The appellant ran and took the risk when he
entered into these transactions and,
therefore, should face the consequences
prescribed and mandated under Section 69C (of Income Tax Act, 1961).”

(iii) Commissioner of Income-tax v. Banarsilal
Dhawan reported in [1977] 109 ITR 360 (Madras),
wherein it is held as under:

“2. The assessee is a dealer in crepe
soles, raw rubber, etc. For the asst.
yr. 1963-64, the relevant accounting
year being the preceding financial year,
he returned an income of Rs. 10,260
under "business". At the time of hearing
before the ITO, it was submitted for the
assessee that the proviso to s. 145(1)
of the IT Act was applicable and that
the assessee had no objection to the
estimate of gross profit as in the
preceding year. This resulted in an
addition to Rs. 15,500 to the disclosed
trading results. There were also some
hundi transactions during the previous
year and the assessee filed a peak
credit statement showing a peak credit
of Rs. 31,000. By his letter dt. 2nd
Sept., 1966, the assessee's
representative admitted that a sum of
Rs. 31,000 said to be hundi loans was
not capable of verification and,
therefore, may be treated as having been
admitted under section "F" of the return
of income. It was also claimed on behalf
of the assessee that a sum of Rs. 8,500
out of the total amount of Rs. 31,000
pertained to the previous year and that
it should be deducted. It was further
claimed that the said sum of Rs. 31,000
should be set off against the intangible
additions of the earlier years. The ITO
declined to comply with this request of
the assessee. He held that the assessee
had not linked the intangible additions
of the past years with the appearance of
the credits and unless the assessee
proved that the hundi credits were
introduced out of profits made in the
trading account outside the books, it
was not possible to telescope the two
additions, with the result, he assessed
a sum of Rs. 31,000 as income from other
sources. 
Against the order of the ITO, the
assessee preferred an appeal to the AAC
and before that officer the assessee
contended that the ruling of this Court
in S. Kuppuswamy Mudaliar vs. CIT (1964)
51 ITR 757 (Mad) enabled the assessee to
claim a set-off of the gross profit
additions of the past years against the
unexplained credits in the year in
question. The AAC declined to accept
this argument and, in his view, the
decision of this Court in S. Kuppuswamy
Mudaliar vs. CIT (supra) must be taken
to have been overruled by the subsequent
decision of the Supreme Court in CIT vs.
Devi Prasad Vishwanath Prasad (1969) 72
ITR 194 (SC) : TC42R.1025 with the
result, he sustained the order of the
ITO. The assessee, thereafter, preferred
a second appeal to the Tribunal. The
Tribunal held that the decision of this
Court in S. Kuppuswami Mudaliar vs. CIT
(supra) applied to the facts of this
case and that the decision cannot be
said to have been overruled by the
subsequent decision of the Supreme Court
in CIT vs. Devi Prasad Vishwanath Prasad
(supra), with the result, the Tribunal
accepted the contention of the assessee
and allowed the assessee what it called
the benefit of set-off of gross profit
additions of the past years against the
unexplained cash credits in question and
directed the deletion of Rs. 31,000 as
income from "other sources". It is the
correctness of this conclusion of the
Tribunal that is challenged before us in
the form of the questions extracted
already. 
7. In the first place, we are of the
opinion that once the assessee has
originally shown the credits as having
emanated from certain named individuals
and when he failed to establish the
same, it was not open to him to fall
back on a claim that these unexplained
credits must be taken to have come out
of the additions made in the earlier
years. Even if it was open to him to put
forward such a case, it was for him to
prove positively that though the credits
stood in the names of third parties,
still it was his money which was brought
into account in the names of third
parties and the money itself came from
the additions made to his assessment in
the previous years. Incidentally, this
will involve his explaining why he
brought his own money into the accounts
in the names of third parties. The
assessee in the present case has not
proved any such thing. It is exactly
this position which the ITO in his order
pointed out while making the additions. 
The Tribunal without considering any of
these facts proceeded as if the decision
of this Court in S. Kuppuswami Mudaliar
vs. CIT (supra) laid down a universal
proposition of law that whenever an
assessee failed to explain the credits
found in his books of account, it was
open to him to claim a set-off of those
credits as against the additions made to
his income in the previous years'
assessments. As we pointed out already,
no such proposition has been laid down
by this Court in the decision referred
to above. As a matter of fact, apart
from removing the misconception arising
from the inaccurate and misleading use
of the expression "intangible
additions", this Court did not lay down
any such general proposition of law, as
if the additions made to the income
returned by an assessee, by the
Department, constitute his last refuge
whenever he finds himself in a tight
corner not being able to explain the
credits found in his accounts. The truth
is that such additions are as real an
income, at any rate as far as the
Department is concerned, as the income
returned by the assessee, and one can as
much as the other constitute the source
to explain the credits in the accounts
in the subsequent years. Therefore, the
decision of this Court does not invest
such additions with any special
significance as a source to explain the
credits in the subsequent years. In any
case, it will be a question of fact
whether there was evidence to find that
such additions were the source of the
subsequent credits and in this behalf
there is no difference between this
source and any other source, apart from
the position that with regard to the
income assessed in the earlier years,
its existence as a possible source of
the credits will be a matter of record
with the Department while with regard to
other sources, their existence may be a
matter to be proved.”

Referring to above decisions, it was
submitted by the learned senior advocate Mr.
Bhatt that the tribunal has committed an error in
allowing set off of gross unaccounted payments on
certain transactions against unaccounted receipts
for computing unexplained investment made by him
in accordance with section 69B (of Income Tax Act, 1961) of the I.T
Act,1961.

SUBMISSIONS OF ASSESSEE FOR Q. NO.1 
7. On the other hand, the learned senior
advocate Mr. S. N. Soparkar assisted by the
learned advocate Mr. B. S. Soparkar, submitted
that the issue of set off of gross unaccounted
payments on certain transactions against
unaccounted receipts for computing unexplained
investment in accordance with section 69B (of Income Tax Act, 1961) of the
I.T Act is squarely covered as per the following
decisions:

(i) Referring to this decision of the Supreme
Court In the case of Anantram Veerasinghaiah &amp;
Co. v. Commissioner of Income-tax reported in
[1980] 123 ITR 457 (SC), it was submitted that
the Supreme Court has held that the mere
availability of fund, in all cases cannot imply
that the assessee has not earned further secret
profits of undisclosed income during the relevant
assessment year, but at the same time, it is a
matter of consideration by the taxing authority
in each case whether the unexplained cash
deficits and the cash credits can be reasonably
attributed to a pre-existing fund of concealed
profits or they are reasonably explained by
reference to concealed income earned in that very
year.

(ii) Reliance was placed on the case of
Commissioner of Income-tax v. President
Industries reported in [2002] 258 ITR 654
(Gujarat) wherein it is held that the sales only
represent the price received by the seller of the
goods for the acquisition of which it has already
incurred the cost. It is the realization of
excess over the cost incurred that only forms
part of the profit included in the consideration
of sales. Therefore, unless there is a finding to
the effect that the investment by way of
incurring cost in acquiring goods which have been
sold has been made by the assessee and that has
also not been disclosed, the question whether
entire sum of undisclosed sales proceeds can be
treated as income of the relevant assessment
years, answers by itself in the negative.

(iii) COMMISSIONER OF INCOME TAX (CENTRAL) COCHIN. vs.
P.D. ABRAHAM @ APPACHAN 349 ITR 442 (Ker), where in
the High Of Kerala held as under:

8. After hearing both sides and after
going through the orders, what we notice
is that the Assessing Officer has
considered the claim of the assessee
that film directors were paid profit
share of various films directed by them
for the assessee. Moreover, details of
payments were also available in the
seized records. However, the Assessing
Officer declined to believe assessee's
claim for the reason that there is no
written agreement between the assessee
and the film directors for profit
sharing over and above the agreed
consideration paid to them and the cost
reimbursed for the production of the
film. Further the Assessing Officer has
heavily relied on the denial made by the
film directors against receipt of
payments. We are unable to uphold the
Revenue's claim for many reasons. In the
first place, admittedly assessee was
engaged in unaccounted business and
accounts seized pertain to clandestine
transactions showing unaccounted
receipts and unaccounted expenditure. 
The assessee himself has voluntarily
declared undisclosed income of Rs.43
lakhs over the income returned for the
block period. So much so, there is no
justification for doubting the entries
found in the seized records pertaining
to expenditure while accepting the
income found recorded therein. When the
Department relies on the seized records
for estimating undisclosed income, we
see no reason why the expenditure stated
therein should be disbelieved merely
because there is no written agreement
and that payments were not made through
cheques or demand drafts. Even when
unaccounted income is determined from
business carried on clandestinely or
not, the statute does not authorize
assessment of anything other than
"undisclosed income" which has to be
arrived at after allowing expenditure
incurred by the assessee whether it be
accounted in the regular books or not. 
What is clear from the clandestine
records seized from the assessee is that
both the film producer and the film
directors were engaged in collections
and payments outside the regular books
of accounts and that is the only reason
why there is no written agreement
between them in regard to profit sharing
and the payments are consciously not
made through cheques or demand drafts.
The Assessing Officer has also stated
that the purpose of payments is not seen
recorded in the seized records. We do
not think this unrealistic stand is
justified in the context of the business
carried on by the assessee because
between the film producer and the film
directors income seen recorded and
payments seen made should be taken as
relating to business and nothing else.
The mere fact that film directors have
not confirmed receipt of payment in cash
from the assessee also is not a ground
for treating the payments as bogus or
not genuine. In our view, there is
nothing to doubt the genuineness of the
payments because assessee himself
explained that the film directors are
entitled to share profits in respect of
successful movies, and the Department
has not established that such practice
is not there in the film industry.
Since, in principle, we uphold the order
of the Tribunal that entries relating to
payments to film directors found in the
seized records should be accepted, we do
not think there is any need for us to go
to the details of the films produced and
various amounts paid periodically by the
assessee. Therefore, we do not find any
justification to interfere with the
findings of the Tribunal with regard to
the payments made to the Directors
though not recorded by the assessee or
the payees in the regular books of
accounts. 
9. The remaining part of the addition is
only disallowance of payments stated to
have been made by the assessee to
M/s.Kumudavally Pictures for purchase of
a Tamil film. It is seen that while the
total payments were Rs.37 lakhs, only
Rs.22 lakhs was accounted and balance
Rs.15 lakhs was unaccounted payments,
which is also seen recorded in the
seized records. We do not think there is
anything to doubt the genuineness of the
transaction because generally what is
found by the Department from the seized
records is that the business is done
partly with black money and partly with
white money though accounting of income
and expenditure are of insignificant
amounts. 
10. Learned Senior Standing Counsel for
the Revenue has also made reference to
the explanation to Section 37(1) (of Income Tax Act, 1961) and also to the scope of the proviso
inserted to Section 69C (of Income Tax Act, 1961) by
the Finance (No.2) Act, 1998 with effect
from 01/04/1999. Learned counsel for the
assessee contended that film production
is not an illegal business and therefore
payments made though without accounting
cannot be said to be illegal payments
attracting explanation to Section 37(1) (of Income Tax Act, 1961). We do not think unaccounted
expenditure in a proper business can be
treated as an expenditure prohibited by
law to attract explanation to Section
37(1) (of Income Tax Act, 1961). So far as the proviso to Section
69C (of Income Tax Act, 1961) is concerned, in the first place the
proviso introduced with effect from
01/04/1999 does not apply to the block
assessment for the period covered herein
and secondly we do not think excess
expenditure over accounted expenditure
in business is covered by Section 69C (of Income Tax Act, 1961)
itself. We therefore do not think there
is any application of these two Sections
to the case in hand. We, therefore, do
not find any ground to interfere with
the orders of the Tribunal with regard
to the deletion of total addition of
Rs.1.09 crores and odd to three film
directors and one film producing Company
towards unaccounted payments made by the
assessee to them. The first question
raised in Revenue's appeal is therefore
answered against the Revenue and in
favour of the assessee.

(iv) Unreported decision in case of Commissioner
of Income Tax v. Tirupati Construction Company in
Tax Appeal No. 1010 of 2014.

“7. At the outset, it is required to be
noted that, while appreciating a
document, it is required to be
considered in its entirety and it cannot
be considered in part. In the case on
hand, while appreciating the papers /
documents, which according to the
Assessing Officer, contained accounted
and unaccounted transactions on the part
of the Respondent-assessee, she not only
failed to examine it properly but also
failed in assessing the income as per
law. Further, though, the AO, herself,
had prepared the account of profit and
loss in respect of accounted and
unaccounted entries, she did not assign
any reason, as to why the profit and
loss account of unaccounted transactions
of the Respondent-assessee cannot be
believed to be true. Moreover, the AO
also did not take into consideration the
explanations tendered by the Respondent-
assessee vide letters dated 10.12.2008
and 29.12.2008. Even, the working of the
peak based on the seized diary given by
the Respondent-assessee for the
concerned assessment years was also
overlooked by the AO and, here again, no
reason was assigned for the same. We
are, therefore, of the opinion that the
CIT(A) rightly held that it would be
just and proper, if, the income from the
transactions recorded in the seized
diary are determined on the basis of
highest peak, as increased by the net
profit of 5 per cent on the receipts and
taxed accordingly, for the relevant
assessment years. We do not find that
the CIT(A) and ITAT has committed any
jurisdictional error in passing the
impugned orders.” 
It was therefore, submitted that the assessee
is entitled to set off of payment made in cash
against receipts in cash when the assessee has
admitted to the existence of cash receipts and
payments and in such circumstances, subsequent
payment should be presumed to be made out of the
cash available from the earlier receipts. 
Therefore, the Assessing Officer could not have
added the entire gross receipt in the hands of
the assessee. It was therefore, submitted that
the Tribunal has rightly held that there is no
reasonable cause for rejecting the claim of the
assessee for adjustment of subsequent cash
payments against the earlier cash receipts.

OPINION FOR Q.NO.1 
8. Having heard the learned advocates for the
respective parties and having gone through the
materials on record, it is pertinent to note that
the assessee did not furnish any detail or
particular about availability of the funds from
the unaccounted land deals during the course of
assessment proceedings as recorded by the
Assessing Officer. The assessee failed to furnish
the basic and primary facts. Moreover, it
appears that the Tribunal has also not considered
the fact that the amount of Rs.2.53 crores
pertaining to the land deals at near Ramdev-pir-
ni-tekro between Leela Housing and Infrastructure
Housing Pvt. Ltd. and the Saumya Construction has
been protectively taxed in the ends of the
assessee and substantive addition has already
been made in the hands of the Companies. Thus,
such funds were prima facie not available for any
further investment made by the assessee in his
individual land business.

8.1 With regard to other investments, as per
the seized papers most of the investments have
been made during the F.Y.1994-95. On money
receipts pertaining to the second land deal of
Ramdev-pirni-Tekro were received during the F.Y.
1993-94 and the entire on money payment from RDIL
at Rs.12.80 crores was received only from April
1995 onwards till September, 1995.

8.2 Similarly the undisclosed income
determined for investment and profit in remaining
two land deals were also determined falling in
the F.Y.95-96 and the brokerage amount was also
not received. Therefore, the Assessing Officer on
the basis of the facts available on record has
held that the assessee is not entitled to any set
off of unaccounted income against the unexplained
investment made as there is no co-relation
between the unexplained cash receipts and
unexplained investment.

8.3 In view of above, we are of the opinion
that the Assessing Officer has rightly not
granted the claim of the assessee for set off on
the basis of the facts of the case as there is no
even prima facie evidence to show that the income
received by way of on money receipts was
available for investment in the land deals and
was not otherwise invested.

8.4 The Tribunal however, emphasized on a
presumption that a reasonable view demands that
subsequent payment should be presumed to be made
out of the cash available from the earlier
receipts, if any. The Tribunal without adverting
to the facts has allowed the claim of the
petition only on the ground of such presumption
by referring to the principles of peak credit
without applying the same to the facts of the
case.

8.5 Moreover, the Tribunal has also erred in
discading the fact of absence of any material to
show that the assessee proving nexus or co-
relation between unaccounted cash receipts and
payments. Therefore, in such circumstances, it
appears that the Assessing Officer has rightly
held that the assessee is not entitled to any
claim of set off and all income as well as
investment determined are liable to be considered
without any set off against each other.

8.6 In view of the facts available on
record, we are of the opinion that the Tribunal,
which is a final fact finding authority has
reversed the findings of the Assessing Officer
only on the basis of the principles of law
without referring to the facts available on
record. Therefore, the decisions cited on behalf
of the assessee which are based on facts of each
case are not applicable and hence the same are
not discussed in detail.

8.7. In such circumstances, we answer the question
No.1 in negative i.e. in favour of the Revenue
and against the assessee.

QUESTION NO.2 
9. As regards the Question No.2 for allowing the
loss under Section 37 (of Income Tax Act, 1961) in respect of
unexplained and unaccounted cash investment which
did not result into tangible benefit, the factual
aspects of the case relating to Baronet land and
Jagatpur land are that the assessee claimed the
loss of Rs.2.93 crores on account of payment made
to one Shri G.C. Patel for procuring land as the
land deal could not be materialized. The
Assessing Officer has referred to the statement
of Shri G.C. Patel who has deposed that he has
not received the said amount. The Assessing
Officer has narrated the facts in detail in para
5 with regard to Baronet land and land at
Jagatpur.

SUBMISSIONS OF REVENUE FOR Q. NO.2 
9.1. The learned Senior advocate for the Revenue
submitted that there is no evidence on record to
show that the assessee made payment to Shri G.C.
Patel, whereas on the contrary Shri G.C. Patel in
his statement stated that he did not receive the
amount of 2.93 Crore from the assessee. It was
submitted that the onus is on the assessee to
establish that he has suffered the loss and if
the contention of the assessee is accepted then
such amount which is not supported by any
evidence except bare words of the assessee would
go out of tax. It was therefore, submitted that
the findings given by the Tribunal for allowing
loss is beyond the records are perverse.

9.2. The attention of the Court was invited
at the findings given by the Assessing Officer in
para 5.2.10, which reads thus: 
“5.2.10 DETERMINATION:

(i) The contention of the assessee filed
vide letter dated 11-9-97 and further
clarification vide letter dated 18-9-97 are
considered very carefully, it is admitted
even till date by the assessee that Rs.2.93
crores was paid in cash. Further it is to
be noted that the assessee even at this
stage also has not uttered a single word
abut the source of such huge unexplained
cash payment and as per submission filed
also the same admittedly remain totally
unexplained. Rights in the land to the
extent of cash payment were existing as
stated by Shri Manoj Vadodaria in his
statement recorded on 13-11-95, 14-11-95,
16-11-95 and finally on 7-2-96. Therefore,
the contention now taken vide para 7.4 as
above is not acceptable that the assessee
was not having any right against the cash
component paid by him towards the land deal.
In fact, the submission for the assessee are
contrary to the available facts on records
and goes against basic business prudence as
no person would allow a transaction in which
he has made huge investment of nearly Rs. 3
crore to be settled without any benefit to
him. The obvious suggestion which emerges
from such contention is that assessee is now
contending that he allowed the Adani Group
concern to make profit at his Cost, which he
would never do unless such cash component
came from Adani's, which he empathically
denied in his statement recorded. In his
statement dt. 13-11-1995 in reply to Q.11 it
was clearly and categorically mentioned by
the assessee that against cash payment of
Rs. 2.93 crores paid by him, his development
right with society were still outstanding
and were yet to be settled. Further still in
reply to Q.12 on 16-11-1995 it was again re-
iterated by assessee that he was having
development right with society against cash
payment and due to dispute between society
and present developers he was not having
written agreement with any of them. In
reply to Q.16 of the statement on 16-11-1995
he clearly admitted existing investment of
Rs. 2.93 crores in Baronet land for
development rights. Still further when
queried about his role in Baronet land deal
in Q.11 of his statement recorded on 7-2-
1996, the assessee maintained that this is
true that on papers this land deal was
finally done between Govind C. Patel and
Adani, but all its negotiations were done by
him and all cash payment were arranged by
him. But since he did not have availability
for payments to be made through cheques, he
had arranged for cheque payments through
Adani's. It was also negotiated by him.
Therefore, he was negotiating with the
society against the cash payment made. The
assessee maintained that since he had
negotiated with Shri Govind Patel through
Shri Suresh Patel, he was aware about all
the facts. 
(ii) The above depositions spread over two
months, that too after 2 months from the end
of the block period clearly brings out that
when in Feb,96 the assessee was fairly
certain about the rights against cash
payment made and was accordingly making
negotiations. Further, it is simply
unbelievable that when he had himself
negotiated the subsequent land deal (as now
stated to be between Labh Construction Ltd.
And Adani's) that he would have totally
sacrificed his interest represented by
investment of Rs. 2.93 crores made in cash.
The further contention raised that
department may now confirm with Labh
Construction Ltd., that no cash payment was
made is on face of it devoid of any merit or
substance and fairly speaking such a
contention cannot be seriously even raised.
This is an admitted position that any person
would not admit any unaccounted investment
in land deal, thereby inviting tax
liabilities and penal consequences and
additional Stamp Duty, unless department is
in possession of incriminating evidences and
hence there is absolutely no question of
Labh Construction Ltd. admitting any such
payment. Hence the contention now taken
about loss are on the facts of it, devoid of
any merit and substance and in any case
assessee has brought to evidence or details
on records to establish huge loss and
further fact that such loss was actually
incurred before the end of block period. It
is worthwhile to note that assessee has
raised serious objections that transactions
discovered in other searches, even though
pertaining to the block period cannot be
considered in block proceedings. Here on the
fact of it until after the close of more
than 4 months from the end of block period
i.e. 21-9-95, the assessee in his statement
recorded on 7-2-96 admitted the existence of
right and thus loss was not incurred before
the end of block period. 
(iii) Further it is settled position of
law that income/loss is to be determined
with reference to the definite period
covered under assessment and loss/profit
incurred/earned beyond that period cannot
enter into the computation of earlier
period. The assessee in view of above
discussion has totally failed to establish
that loss was incurred prior to the end of
block period and value of investment made in
cash at the end of block period was NIL and
hence the claim of loss is not maintainable
on facts as well as in law and is hereby
rejected. 
(iv) In view of the aforesaid discussion,
addition of Rs. 2.93 crores is made in the
total income of block period in the hands of
the assessee as unexplained investment.
Since a sum of Rs. 50 lakhs is paid cash in
the F.Y. 93-94 and Rs. 2.43 Crores is paid
in cash in the F.Y. 94-95, hence,
accordingly addition as unaccounted
investment for Rs. 50 lakhs is made in the
Asst. Yr. 1994-95 and Rs. 2.43 crores in the
Asst. Yr. 1995-96 respectively.
(A.Y. 1994-95 Rs. 0.50 crores, A.Y.
1995-96 Rs. 2.43 crores.)” 
9.3. Similarly with regard to the land at
Jagatpur, the assessing officer in para 5.5.5 of
the assessment order has observed as under : 
“5.5.5 DETERMINATION : 
i) It is an admitted fact that the land was
purchased at the payment of Rs. 10 lacs from
the farmers and sold to Shri Govind C. Patel
at Rs. 2.16 crores and repurchased by the
assessee at Rs. 3.36 crores. Against
initial sale, a sum of Rs. 1.90 crores is
received by the assessee from Shri Govind C.
Patel from 19-10-1993 to 10-8-1994. Rs. 26
lacs were outstanding at the time of
repurchase by the assessee. The account was
squared up by way of Hawala of Kanubhai
Patel to Rs. 1.75 crores and Rs. 1.35 crores
payable by the assessee to Shri Govind C.
Patel and by cross entry (adjustment) of Rs.
26 lacs. 
ii) It is further clear from the page.105
that amount outstanding at the time writing
of page.105 on the instruction of the
assessee was Rs. 1.05 crores against Rs.
1.35 crores as on page.21. It means that
Rs. 30 lacs is admittedly paid by the
assessee to Shri Govind C. Patel, Further
the assessee has himself admitted investment
of Rs. 87 lacs in his statement recorded
u/s. 131 (of Income Tax Act, 1961) by the ADIT and accordingly
disclosed the amount as his unaccounted
investment vide reply to Q.16 of Statement
dtd. 16-11-1995. 
iii) The assessee has claimed loss of Rs. 130
lacs vide Para 10.5 which is not acceptable
as no proof regarding cancellation of the
deal with the farmers and no other evidence
to this effect were furnished during the
course of assessment proceedings by the
assessee. Apparently, the poor farmers
simply could not have afforded to cancel the
deal after receipt of substantial sum which
would have been required to be returned by
them in the event of such cancellation,
would have entailed, more so considering
assesses self professed role as
sophisticated broker in para 1.2 of his
written submission dtd. 11.9.97 as extracted
above. The undisputed admitted position
about this land transaction which emerges is
here under :

1. Assessee has paid Rs. 10 lacs to
farmers 
2. Assessee has further paid Rs. 77
lacs to Shri Vijay Shah in connection
with reacquisition of this land as
admitted by assessee. 
3. Assessee has also paid Rs. 30
lacs in connection with this very deal,
apart from Rs. 175 lacs paid to Kanubhai
as agreed in para 10.4(f) of written
submission dtd. 11-9-95. Thus, against
total payment Rs. 205 lacs, assessee was
in receipt of money to the tune of Rs.
190 lacs. Thus a further amount of Rs.
15 lacs was paid. 
4. Thus overall payment /
investment made by assessee in
connection with this land deal stand at
Rs. 102 lacs (Rs. 10 Lacs + Rs. 77 lacs
+ Rs. 15 lacs) against the land whose
initial sale consideration was agreed at
Rs.2.16 crores and later the assessee
reacquired at Rs. 3.36 crores. 
iv) In the face of this clear position of
facts, assessee's contention of loss without
any shred of evidence is required to be
simply ignored as assessee is holding this
land worth more than Rs. 3 crores obtain
investment of Rs. 1.02 crores only. Further
the assessee being self professed expert in
land clearance etc., it is difficult to
accept assesses contents as now taken that
he could not get necessary clearance or
permission which remains totally
unsubstantiated in absence of any evidence.
Further the amount payable at Rs. 43 lacs as
contended in para 10.7 and treating the same
as written back liability shows that such
amount was not payable by the assessee to
Govind C. Patel, which in turn confirmed all
the happening about the land deal till date
of recording of statement dt. 7-2-1996. 
vi) In view of the above discussion the
total investment in the land at Rs. 102 lacs
is added to the income of the assessee u/s.
69 (of Income Tax Act, 1961) which includes Rs. 87 lacs
admitted by the assessee as his net
investment. An undisclosed income of the
assessee in the Asst. Year 1994-95 for
initial payment to farmers at Rs. 10 lakh
and balance for A.Y. 1996-97.

(Asst. Year – 1994-95 – Rs. 10 lakhs
Asst. year – 1996-97 - Rs.92 lakhs)”

9.4 Referring to the above findings of the
Assessing Officer, it was submitted that there is
no evidence for any payment made by the assessee
to Shri G.C. Patel and therefore, the assessee is
not entitled to claim of any loss under Section
37 (of Income Tax Act, 1961).

9.5 Referring to the findings given by the
Tribunal in para Nos.23, 24 and 38 of the
impugned order, it was pointed out that the
Tribunal has not considered the fact that there
is no evidence available on record, which
indicates the payment made to Shri G.C. Patel and
Shri G.C. Patel has denied the receipt of such
payment. It was submitted that the decisions
cited by the assessee before the Tribunal are
also of no consequence as in such cases material
available on record was indicative of payment
made upon which the presumption was drawn for
incurring of loss. It was therefore submitted
that in the facts of the case, the Tribunal
without arriving at any finding of fact has
allowed the loss and as such the impugned order
of the Tribunal is perverse.

9.6 In such circumstances, it was submitted
that the Tribunal has erred in holding that the
assessee is entitled to the loss with regard to
the unexplained and unaccounted investment, which
did not result into tangible benefit under
Section 37 (of Income Tax Act, 1961) as business loss under
Section 28 (of Income Tax Act, 1961).

SUBMISSIONS OF THE ASSESSEE FOR Q.NO.2 
10. On the other hand, the learned senior
advocate for the assessee relied upon the
findings given by the Tribunal in para 23 to 25
of the impugned order, which reads thus: 
“23. The next deal considered in the
assessment order is of Baronet land in
paras marked 5.2.1 to 5.2.10 on pages 37 to
44. The Assessing Officer has made an
addition of Rs. 2.93 crores for cash paid by
the assessee to Shri G. C. Patel for
acquiring the rights in the aforesaid land.
In this particular deal there is no dispute
between the assessee and the Department in
regard to the quantum. It is admittedly
paid by appellant and therefore has to be
considered in the assessment of the
appellant. We, therefore, need not elaborate
herein that aspect. The real dispute is of
the allowability of this sum of Rs. 2.93
crores as loss. Assessee's stand is that
cash has been paid and the assessee has
admitted it and on that basis he is being
taxed, but there is no evidence which would
be admissible in any civil litigation for
supporting the assessee's case that he made
that payment and acquired any rights in that
land. Assessee claims that Shri G. C. Patel
has not admitted to the receipt of this
money. Therefore, according to the assessee
the cash payment made by him is totally lost
to him from the date of search itself due to
a sort of precipitate action taken on that
date and the sense that negotiations and
transactions which were not intended to be
recorded and shown came to that and hence
the parties involved would take their
respective stands on the basis of existing
record. Since there is no record existing
for booking Shri G. C. Patel and he has not
admitted to the receipt of the money paid by
the assessee it is a loss to him. 
24. On the other hand, Department's
contention is that assessee was still having
some development rights outstanding which
were to be settled and further that it was
not conclusively proved by the assessee that
the money paid by him was totally lost to
him and that too within the block period
relevant to this assessment. 
25. On careful consideration we find that
the information and evidence brought on
record in this regard is inadequate for
enabling us to take any view in the matter.
Respective stands have been reiterated
before us but they are basically by way of
arguments only and to us they do not appear
to be based on some solid evidence –
documentary or oral. Actually no evidence
has been pointed out to us even in regard to
existence of any dispute in regard to this
land unlike the position in the Silver Arc
Land. Further, assessee has claimed at the
development rights in this land have been
assessed on successively to a number of
parties and ultimately to Labh Construction
Ltd. but the Department has tried to verify
the correct position in regard there. One
can imagine and envisage a number of leads
for litigation in this respect but with a
view not to restrict the Department's
discretion in this regard, we consider it
just and proper not to mention them herein.
The facts and in the circumstances of the
case, it would just and reasonable to set
aside this particular act with a direction
that the Assessing Officer would adjudicate
upon it and he would be free to collect and
consider fresh material also as he may deem
fits to decide whether it is a loss to the
assessee. Similarly, assessee would be free
to produce any material in support of his
contentions for claim of loss. Of course,
the Assessing Officer before taking a view
would give a reasonable opportunity of being
heard to the assessee.”

10.1. The learned counsel submitted that the
Tribunal has remanded the matter back to the
Assessing Officer with a direction to adjudicate
the issue afresh.

10.2. With regard to the other land at
Jagatpur after recording the facts of the case,
the Tribunal ultimately held in para 38 and 39 of
the impugned order, which reads thus :
“38. The Assessing Officer has given his main
reason for rejection of claim for loss in
clauses marked (iv) onwards on page 61 of
the assessment order. He has pleaded that
the assessee has acquired rights in the
land. He has also pleaded that the poor
farmers could not have agreed to the
cancellation of deal. On careful
consideration, we find that it is an
admitted position that the assessee had paid
only Rs. 10 lacs to about twenty farmers by
way of advance and no formal documents of
any type were executed in regard to this
land and no cheque payment was also made.
Assessee entered into agreement with Shri
G.C. Patel to sell the land obviously in the
hope that he would be able to pass on the
rights of the farmers to Shri G.C. Patel.
In the second part of the deal Shri G.C.
Patel could not have passed on anything more
than what he had acquired in the part of the
deal because a transferor cannot pass
anything more than what he has. So the first
part of the deal for sale from the assessee
to Shri G. C. Patel and the second part of
the deal for reversal of the first part or
even by way of sale by G.C. Patel to the
assessee was in respect of the rights which
were to be acquired from the farmers. In
the absence of any agreement those rights
were not acquired at all. Of course, there
is evidence as pointed out to us available
on record that there were disputes in regard
to this land. e.g. Shri Suresh Patel's
statement dated 30th October, 1995 at page
139 of the Paper Book. So on the facts and
in the circumstances of the case and looking
to the nature of transactions particularly
in regard to the cash transactions which
were not intended to be shown to any
Government Department it is unreasonable to
infer that even after the search the
assessee continued to hold some rights in
that land. A really reasonable inference
would be that assessee made some payments
to the farmers being hardly 5% of the value
(10,00,000 : 2,16,00,000 or even less i.e.
10,00,000 : 3,36,00,000) in the hope that he
would be able to acquire the rights in the
lands and deal with them but ultimately on
account of the land being vest with disputes
and litigation and ultimately on account of
the intervention of the search and seizure
proceedings absolutely nothing formal like
cheque payment or any written agreement etc.
in regard to this deal. The fact of the
matter is that this deal up to the stage of
the transactions recorded in the seized
papers was not intended to be shown to any
Department and the assessee has come to own
up those transactions under the
circumstances referred to in para 7 &amp; 9
above but in the ultimate analysis he has
not acquired any rights in those lands. 
39. The other aspect is that of investment
by the assessee. As already indicated
assessee has admitted an investment of Rs.
10 lacs to the original land owners and the
Department has also accepted this figure.
Second figure is of Rs. 77 lacs given out
by the assessee and accepted by the
Department for the loss really borne by the
assessee on this transaction because out of
a total loss of Rs. 1.20 crores (3.36 –
2.26) assessee has said and the Department
has accepted that a sum of Rs. 43 lacs is
retained by the assessee as unilaterally
taken remission in the sense that this sum
was payable by the assessee to Shri G.C.
Patel but it was payable by the assessee to
Shri G. C. Patel but it has been neither
paid nor regarded as payable after the date
of search viz. 21.9.95. This leaves a
difference of Rs. 15 lacs (102-87) We have
carefully considered that aspect also and we
find that there is a flaw in the approach of
the Assessing Officer in regard to this sum
of Rs. 15 lacs. He has mixed up the
inferences to be drawn from the jottings on
sheet No. 21 in which Rs. 1.35 lacs is shown
as payable by Manoj Vadodariya from there he
has jumped to the jottings on sheet No. 105
in which against Jagatpur land only sum of
Rs. 105 lacs has shown as payable and he has
concluded that a sum of Rs. 30 lacs is paid
during the intervening period adding this to
175 lacs paid / payable to Kanubhai he has
come to the conclusion that Rs. 205 are paid
against the receipt of money of Rs. 190 lacs
and hence a sum of Rs. 15 lacs is extra
paid. Now the real flaw lies in the fact
that he has proceeded with the figure of Rs.
77 lacs for difference between loss of Rs.
120 lacs and unilateral remission of Rs. 43
lacs as admitted by the assessee and then he
has adopted the figure of Rs. 105 lacs as on
page 105. He appears to have fallen into
the error that on the basis of page 105 the
figure of payment would come to Rs. 62 lacs
(i.e. 105-43) so this amount of Rs. 62 lacs
with Rs. 15 lacs computed by Assessing
Officer would give a figure of Rs. 77 lacs
which is admitted by the assessee. In the
computation of the Assessing officer this
Rs. 15 lacs has, in effect, been considered
twice over. Otherwise also it is obvious
that the assessee had met from his
undisclosed sources the effective loss of
Rs.77 lacs (120-43) and also paid Rs. 10
lacs to the original owners. Hence total
investment comes to Rs. 87 lacs only and not
Rs. 102 lacs.”

10.3 Reliance was also placed upon the
findings of the Tribunal, wherein the Tribunal
has discussed the legal aspects of the case in
para 44 and 45 of the impugned order, which reads
thus: 
“44. As already stated, all these unexplained
or unaccounted investments were made for
business. Any expenditure pertaining to
business has to be allowed for computing the
business income. If technically unexplained
investment is added u/s. 69 (of Income Tax Act, 1961) the deduction is
allowable to compute the business income.
If technically unexplained investment or
unaccounted investment is added u/s. 69C (of Income Tax Act, 1961) the
entire expenditure towards it has to be
allowed as business loss. This view is
supported by the decision of Patna Bench of
the Tribunal in the case of Nishant Housing
Development Pvt. Ltd. vs. ACIT 52 ITD 103.
At this stage, we may point out that to
negative this view the Legislature is
proposing to amend Sec. 69C (of Income Tax Act, 1961) in following
manner :- 
“29. Amendment of Section 69C (of Income Tax Act, 1961) – In
section 69C of the Income Tax Act, 1961, the
following proviso shall be inserted at
the end with effect from the 1st day of
April, 1999, namely:- 
“Provided that, notwithstanding
anything contained in any other
provision of this act, such
unexplained expenditure which is
deemed to be the income of the
assessee shall not be allowed as a
deduction under any head of income.” 
45. If such disallowance was automatic then
there was no need of amending Sec. 69C (of Income Tax Act, 1961). It
would be pertinent to note that effect of
the amendment if it is approved will come
into effect from 1.4.1999 which is far after
the relevant years under consideration. The
view of the Patna Bench of the Tribunal is
definitely a correct view because by
technical approach anybody can be taxed on
hypothetical income. There are provisions of
including deemed income and there are also
provisions for restricting the exact
expenditure but there is no case of
hypothetical income or hypothetical
expenditure in the parameter of Income-tax
Act. Income-tax Act has been enacted for
obtaining tax from the income and no tax can
be levied on hypothetical proposition where
the assessee will not be able to pay tax as
per assessed income. The Supreme Court in
the case of Godhra Electricity Co. Ltd. vs.
CIT 225 ITR 746 opined that hypothetical
income cannot be brought to tax. In that
case, it would be seen that if technically
is taken the assessee could be taxed in the
assessment year when the High Court judgment
was in its favour for realising high
electrical charges from the customers but
subsequently when the concern was taken over
by the government no such higher collection
was made by the company but on technical
view the department had included the income
on accrual basis based on High Court
Judgment whereas the Supreme Court was of
the view that the income accrued to the
assessee was only hypothetical and cannot be
taxed because it did not realise the same.
Mere adopting this decision to show that the
actual income or the real income can only be
taxed and further that only the deemed
income as provide in the Act specifically
such as Sec.69 (of Income Tax Act, 1961) can only be taxed.
Accordingly aforesaid payments which
ultimately did not result into tangible
benefit shall be allowable also as
expenditure u/s.37 (of Income Tax Act, 1961).” 
10.4. It was submitted that the Tribunal after
taking into consideration the facts of the case
and after considering the case laws cited before
it, has allowed the loss claimed by the assessee
and the Tribunal also relied upon the amendment
made in Section 69C (of Income Tax Act, 1961) w.e.f. 1st April
1999, whereby a proviso was added for
disallowance for deduction under any other head
of income with regard unexplained expenditure,
which is deemed to be the income of the assessee
under Section 69C (of Income Tax Act, 1961). It was pointed out that the
Tribunal also relied upon decision of the Supreme
Court in case of Godhra Electricity Co. Ltd. vs.
CIT 225 ITR 746, to hold to apply the real income
theory to allow the claim under Section 37 (of Income Tax Act, 1961).

10.5 The learned senior counsel for the
assessee relied upon the following decisions:

(i) Referring to the decision in case of
Principal Commissioner of Income-tax v. RJD Impex
(P.) Ltd. reported in [2016] 69 taxmann.com 306
(Gujarat), it was submitted that this Court while
considering the allowance of the claim of the bad
debts has held as under : 
“4. The facts as emerging from the record
reveal that the respondent assessee had
claimed that certain debts had become bad in
respect of seven parties. The Assessing
Officer declined the claim in respect of six
parties and allowed the bad debt deduction
in respect of A. P. Sayona Trade
Association. In respect of two of the
parties, namely, Sakar Overseas Pvt. Ltd.
and Shree Ram Trading Co., the Assessing
Officer noted that these advances were not
debts which have been taken into account in
the computation of income and that as the
assessee had filed cases against these
entities and as judgment on these court
cases are yet to be delivered, bad debts
were not allowed at that stage. It was also
noted that the goods were not received and
that the payments were made in advance and
that therefore, these amounts could not be
treated as bad debts. As regards the dues
from Quality Foods and S.Y.P. Exporter, the
Assessing Officer was of the view that the
trade advances for purchases could not be
treated as bad debts. As regards S.N. Das
Freight Forwarders Pvt. Ltd., the Assessing
Officer noted that the same represented
excess payment made for forwarding expenses.
According to the Assessing Officer, there
was nothing to show that the amounts have
actually turned bad and he, accordingly,
disallowed Rs.5,15,52,492/-. 
5. In appeal, the assessee took the stand
that without prejudice to its original claim
of bad debts, the amount should be allowed
as a business loss. The Commissioner
(Appeals) called for a remand report from
the Assessing Officer and concluded that to
the extent the transactions in question were
not disputed and the assessee had
demonstrated that loss had actually been
incurred, the same is to be allowed as
deduction as business loss. It was also
noted that the assessee had exported
substantial quantities of agricultural
processed goods, including dehydrated garlic
flakes and white onion powder, and it was in
this connection that the assessee bona fide
and in the course of normal business, gave
advances to S.Y.P. Exporter, Sakar Overseas
Pvt. Ltd. and Shri Ram Trading Co. It was
also noted that criminal cases were also
instituted against the persons who were
given these advances, who turned out to be
fraudulent in their conduct. These advances
were accordingly held to be business loss. 
6. The Tribunal, after considering the
material on record, found that it was an
undisputed position that the assessee did in
fact trade in processed agricultural
produce, in connection with which the
advances in question were made, and it was
in the course of this trading that, the
business loss of making unrecoverable
advances was incurred. The Tribunal found,
as a matter of fact, that the losses were
wholly incidental to the business carried on
by the assessee. It further noted that there
may not be any trading transactions of these
products in the current year, but the
business of the assessee has not come to a
halt. No doubt, the criminal complaints
filed by the assessee had not reached
finality and the persons who allegedly and
fraudulently obtained these advances were on
bail granted by the High Court, however, the
remote possibilities of recovery did not
take away assessee’s right to claim
reasonably foreseeable business loss. The
Tribunal noted that the Commissioner
(Appeals) had given categorical and detailed
findings about these advances having become
actually bad and these findings remain
uncontroverted and accordingly, confirmed
the relief granted by the Commissioner
(Appeals). 
7. Thus, the Tribunal has recorded
concurrent findings of fact to the effect
that advances given by the assessee had
become actually bad and such findings had
remained uncontroverted. It is not the case
of the appellant that the Tribunal has
placed reliance upon any irrelevant material
or that any relevant material has been
ignored, nor is the learned counsel for the
appellant in a position to point out any
material to the contrary to dislodge the
concurrent findings of fact recorded by the
Tribunal. In the aforesaid premises, the
conclusion arrived at by the Tribunal being
based upon the findings of fact recorded by
it upon appreciation of the evidence on
record, does not give rise to any question
of law, much less, a substantial question of
law, warranting interference.” 
It was submitted that the Tribunal has
arrived at a finding of fact but the Tribunal did
not place reliance upon the irrelevant material
or any relevant material has been ignored, more
particularly when the learned counsel for the
Revenue has failed to point out that the finding
of fact recorded by the Tribunal or the
conclusion arrived at by the Tribunal are based
on irrelevant material or are base on ignoring
any relevant material, the impugned order of the
Tribunal cannot be said to be perverse and
therefore, no interference should be made by this
Court in the impugned order of the Tribunal.

(ii) Referring to the decision of the
Rajasthan High Court in the case of Commissioner
of Income-tax v. Anjani Kumar Co.Ltd. reported in
[2002] 124 TAXMAN 429 (RAJ), it was submitted
that the Court after considering the fact that
advance was paid for acquiring agricultural land
to set up a factory, but when the agricultural
land was not required, and no capital asset came
into existence; and therefore there was no
question of granting any depreciation on such
asset but as the land was not acquired,
therefore, the payment made by the assessee was
to be allowed at business loss.

(iii) Relying upon the decision of the Delhi
High Court in the case of Commissioner of Income-
tax v. Rose Services Apartment India(P.) Ltd.
reported in [2010] 326 ITR 100 (Delhi), it was
submitted that the High Court has come to the
conclusion in that case that the loss incurred by
the assessee on account of refund of advance was
in nature of business loss.

(iv) Reference was made to the decision of this
court in case of COMMISSIONER OF INCOME TAX vs.
MAHENDRA N. SHAH reported in 280 ITR 462 (Guj),
wherein it was found that the Tribunal has
recorded as a matter of fact, that there is
evidence in the form of telegrams, correspondence
as well as assessee’s attempt through Consulate
General of India to recover the money, but in
vain and that two post dated cheques received
from intermediary had not been honoured and the
assessee had not received anything against the
amount which was collected by Dubai party by
retiring letter of credit. In that case, the
Tribunal has further recorded the following
findings of facts : (i) the assessee had in fact
suffered a loss to the tune of Rs. 3,45,000; (ii)
the loss related to the business, came to the
knowledge in the year under consideration; (iii)
contention that the transaction was not genuine
was not even the case of the AO because the AO
himself had observed in the assessment order that
a fraud had been committed by Dubai party by
presenting false shipping documents; (iv) in face
of the correspondence and telegrams on record the
assessee had prima facie established incurring of
loss, but the Revenue had failed to discharge the
onus which was clearly on Revenue to show that
the transaction was not genuine; (v) the AO had
placed undue emphasis on the lapse committed by
the bank official but the said fact cannot wipe
out the loss incurred by the assessee. In light
of the aforesaid findings recorded by the
Tribunal while concurring with the view expressed
by Dy. CIT(A), it is apparent that the impugned
order of the Tribunal does not suffer from any
infirmity. In fact, the entire issue is based on
facts and appreciation of evidence without
involving any question of law. The Tribunal was
thus right in holding that the assessee was
entitled to deduction of sum of Rs. 3,45,000 as
business loss document was on record, which
indicate the same.

10.6 It was therefore submitted that the
Tribunal having arrived at finding of facts, no
error can be said to have committed in the
impugned order holding that unexplained and
unaccounted cash investment which did not result
into tangible benefit was allowable expenditure
under section 37 (of Income Tax Act, 1961) as business loss under section
28 (of Income Tax Act, 1961), so as to interfere the same.

OPINION FOR Q.NO.2 
11. Having considered the submissions made by
both the sides and having gone through the
materials on record, it appears that the
Assessing Officer has categorically observed that
there is no evidence to show that the assessee
made payment of Rs. 2.93 crores to Shri G.C.
Patel for acquiring rights in the land, the
Tribunal has found that it is an admitted
position that the assessee had paid only Rs. 10
lacs to about twenty farmers by way of advance
and no formal documents of any type were executed
with regard to the land. Thereafter, the Tribunal
recorded that the assessee entered into an
agreement with Shri G.C. Patel to sell the land
obviously in the hope that he would be able to
pass on the rights of the farmers to Shri G.C.
Patel. It appears that thereafter, the Tribunal
relied upon the statement of Shri Suresh Patel
dated 30th October 1995 that there were disputes
with regard to the land in question and presumed
that as the cash transactions were not intended
to be shown to any Government Department, it is
unreasonable to infer that even after the search,
the assessee continued to hold some rights in
that land. Thereafter, the Tribunal made an
inference that assessee made some payments to the
farmers being hardly 5% of the value in the hope
that he would be able to acquire the rights in
the lands and deal with them but ultimately on
account of the land being vest with disputes,
litigation and ultimately on account of the
intervention of the search and seizure
proceedings absolutely nothing came out of it and
the assessee lost his money. However, the
Tribunal presumed that the assessee made payment
of Rs. 2.93 crores to Shri G.C. Patel in arriving
at such finding which is not borne out from the
record. It appears that the Tribunal has
misdirected itself by observing that it cannot be
reasonably inferred that by paying cash amount of
less than 5% of the total value, the assessee
would still be able to claim some rights in the
land when there is absolutely nothing formal like
cheque payment or any written agreement etc. in
regard to this deal. The Tribunal, therefore in
total disregard to the findings of fact recorded
by the Assessing Officer supported by the
material documentary evidence on record has only
on the basis of the assumption and presumption,
remanded the matter back to the assessing officer
to decide the issue of allowing loss amounting to
Rs.2.93 Crore for payment made to Shri G.C.
Patel.

11.1 We are of the opinion that the very
basis and foundation of claiming the business
loss of Rs. 2.93 Crore by the assessee which
requires finding of fact that the assessee has
made a payment of Rs. 2.93 Crore. However, when
there is no evidence on record with regard to the
payment made by the assessee to Shri G.C. Patel
even by any remote corroborative evidence in form
of any noting on the seized papers found during
the course of search except bare words of the
assessee and when Shri G.C. Patel in his
statement has denied this fact of receipt of cash
amounting to Rs. 2.93 Crore from the assessee,
there was no need to remand this issue back to
the assessing officer, because for unaccounted
transactions there cannot be any evidence for
either payment or receipts of cash except what is
found during the course of search and seizure by
the Department or in form of other corroborative
evidence, which may be collected after search and
seizure and further the statement recorded of the
concerned persons under the provisions of the
Act, 1961. When the assessee claims that he has
not received any benefit out of payment of
unaccounted cash then onus would lie upon him to
claim such payment as business loss. In the
facts of the case, it appears that the Tribunal
contrary to the evidence on record has made
inferences on the basis of the assumption and
presumption so as to remand the issue of the
claim of the assessee of Rs. 2.93 Crore towards
business loss.

11.2 With regard to loss claimed by the
assessee in respect of Jagatpur land deal, the
Tribunal has arrived at the findings contrary to
the material documentary evidence on record as
the Tribunal misinterpreted the seized material
so as to find error in the finding of the
assessing officer which is based on the entries
made in the seized papers at sr. No.21 and 105.
It appears that the Tribunal has considered
irrelevant factors for holding that the assessing
officer has considered twice the amount of Rs.15
Lakhs by taking into consideration the entries in
the seized papers observing that the assessing
officer jumped from one seized paper to another,
whereas on careful consideration of the
assessment order, we are of the opinion that the
Tribunal has arrived at a perverse finding
contrary to the material on record. 
11.3 In such circumstances, the Question No.2
is also answer in negative i.e. in favour of the
Revenue and against the assessee and therefore,
the assessee would not be entitled to claim Rs.
2.93 crores as business loss either as allowable
expenditure under Section 37 (of Income Tax Act, 1961) or business loss
under Section 28 (of Income Tax Act, 1961) with regard to
the unexplained or unaccounted cash investment
which did not result into tangible benefit to the
assessee. As the Tribunal has remanded.

QUESTION NO.3 
12. With regard to the Question No.3, the
Tribunal has deleted the addition made with
regard to the two land deals, namely, Amrakadam
and Sangvilla. The facts of the case with regard
to this issue are that the assessee failed in
discharging his primary onus for identity of
creditor, genuineness of the transaction, and
creditworthiness of the creditor. The assessee
claimed that the payment made to the farmers by
him was an allowable expenditure. The Tribunal
has recorded the factual position in the
following paragraphs with regard to the issue of
the said two land deals, which reads thus :
“2. The date of commencement of search was
21.9.1995 and the date of receipts and
documents u/s/ 158BD of the Act was
11.7.1996 and the assessment was completed
on 30.9.1997. On the basis of search and
seizure operations carried out at the
premises of land brokers Shri Deepak Mehta
and Suresh Patel on the 21st September, 1995.
In the course of those proceedings u/s. 132 (of Income Tax Act, 1961),
inter alia, some loose papers were found
with rough jottings and in the statements
recorded u/s. 132 (of Income Tax Act, 1961)/131 the said Shri Deepak
Mehta and Shri Suresh Patel stated that the
seized paper identified as Nos. 6; 21; 22 &amp;
105 of Annexure-1 depicted the cash
transaction in which assessee was involved
as buyer/seller and/or broker. Thereupon
statements of the 16.11.95 and finally on
7.2.96. It is significant to note that
action u/s. 132 (of Income Tax Act, 1961) was not taken in assessee's
case. Further, it had also transpired that
one Shri G. C. Patel of the Ganesh Housing
group was also involved in many transactions
with the assessee but again significantly
action u/s. 132 (of Income Tax Act, 1961) was not take at his place
also. Perhaps some statements of Shri G. C.
Patel were recorded but in the block
assessment of this assessee there is no
identification or even mention regarding
versions of claims of the said Shri G. C.
Patel let alone Department's finding there-
on. Assessee specifically asked for the
copies of inter alia the statements of Shri
G.C. Patel but in vain. Department's stand
is and was that those statements are not
being used against the assessee. 
3. The assessee in his statements, broadly
speaking, admitted existence of almost all
the transactions of those seized papers
marked as No.6; 21; 22 and 105 but gave his
own version and explanations in regard to
their contents. 
4. Then on 14.3.96 there were search and
seizure operations u/s. 132 (of Income Tax Act, 1961) carried out at
the premises of Radhe developers (India)
Ltd. (RDIL for Short) and its officers, in
the course of which loose papers with rough
jottings were found and paper marked 106 of
Annexure-A3 related, inter alia, to the land
of Shantinagar Shaila Co.O\op. Housing
Society. At one time Shri Ashish Patel,
Managing Director RDIL stated to the effect
that the jottings were for payment of Rs.
12.80 crores to the assessee and Vasant
Adani etc. In regard to these papers and
transactions assessee, right from the
beginning, has denied his involvement. 
5. Then, in the course of yet another
search on 3.8.96 in the premises of L. T.
Shroff some seized paper allegedly depicted
deposit of Rs. 10 lacs in cash by the
assessee and the existence of this deposit
is also denied all along by the assessee. 
6. The assessment order itself runs into
112 typed sheets and carries almost an equal
number of sheets as Annexures being Xerox
copies of some of the seized papers and the
copies / synopsis of some of the recorded
statements. Assessee's grounds of appeal
and SOF run into 48 types sheets and are
accompanied with three Annexures. Very
detailed hearings took place before us in
the course of which the learned Advocates
for the assessee pressed and elaborated very
succinctly the points taken in the grounds
of appeal and SOF. The learned Sr. DR also
very proficiently and empathically defended
the assessment order. He furnished written
submissions (in ten closely typed sheets)
also primarily in the form of synopsis and a
sort of summation of Department's stand.
Very detailed submissions were made before
us from both sides on each of the disputes
and transactions involved but some common
aspects of the respective stands run through
almost all the disputed items. For facility
of exposition it would be better to note
first some of those common aspects”

12.1 The Tribunal, thereafter recorded its
finding in respect of Amrakadam land in para
Nos.12 to 16 of the impugned order, which reads
thus : 
“12. Bond land deal considered in the
assessment order is the said Amrakadam land
or Vejalpur Survey No.1196. This land was
sold by the assessee to Saumya Construction
and assessee has readily admitted a profit
of Rs. 32.70 lacs apart from a sum of Rs. 5
lacs paid by him, earlier in point of time,
to the original owners (being farmers) of
that land. But vide para marked 4.4 (with
sub-paras 4.4.1 to 4.4.4) on pages 22 to 25,
for that addition made is of Rs. 87.22 lacs
inclusive of Rs. 2.41 lacs for a smaller
piece of land of 242 sq. yds. Assessee's
stand in the matter is firstly that there
was no separate payment of Rs. 2.41 lacs in
regard to a smaller plot and secondly that
all the cash and cheque payments were made
by the ultimate purchaser M/s. Saumya
Construction P. Ltd. of the original land
owners who were farmers and in the process
assessee earned only a profit of Rs. 32.70
lacs by way of rate difference. In the
statement of facts accompany in the grounds
of appeal paras marked 3.1 and 3.2 on pages
238 of the paper book give, inter alia,
detailed tracts from the assessment order
passed by the Assessing Officer (viz. DCIT,
S.R.1 (of Income Tax Rules, 1962), Ahmedabad) in the case of Nila on
29.8.97. It is argued on behalf of the
assessee that in that assessment order a
detailed analysis of all the facts and
figures has been done and therein is he that
on the basis of jottings on the seized paper
as well as appropriate analysis of the
relevant part of the statements recorded it
has to be held that assessee received in
cash Rs. 84.81 lacs only after deal was
finalised at Rs. 1,34,25,000. On this basis
it pleaded that there was absolutely no
justification or adding separately a sum of
Rs. 2.41 lacs as referable some other small
plot. Even in regard to the cash receipt Rs.
84.81 lacs it is submitted that the assessee
passed on major part of it to the original
land owners viz. farmers who admittedly
received the cash payments also directly
from the housing society and he made a
profit of Rs. 32.7 lacs only. 
13. In the written submissions, the Sr. DR
has again emphasised the aspect that the
assessee has not furnished confirmatory
letters or even the complete addresses of
the farmers to whom he claims to have passed
on substantial cash out of Rs. 84.81 lacs
received by him. It is further contended by
the learned Sr. DR that such cash payment by
the assessee to the farmers is nowhere
recorded in the seized documents. 
14. It is submitted by the learned Advocate
of the assessee that the learned Sr. DR is
not justified in emphasising that the
complete address of the original owners were
not furnished. It is pleaded that the cheque
payments are made to the original owners and
those persons are identifiable and at any
rate the assessee had given the names and
Vejalpur was not such a big place that the
person could not have been identified; only
if Department tried to locate/identify them. 
The point made out is that the complete
information is furnished by the assessee and
Department has not tried to verify it at
all. In regard to the confirmatory letters
it is submitted that the original owners
after receiving the full money were no more
under the control of the assessee and hence
Department should have attempted to verify
the correctness of assessee's claim.
Ultimately it is submitted that the profit
shown in a sum of Rs. 32.70 lacs on a deal
of a total sum of about Rs. 1.34 crores and
that too within a short period of a couple
of months is more than reasonable and
deserves to be accepted. 
15. We have considered the rival submissions
and material on record. The seized papers
relevant for this deal is No.6 of Annexure-
A1 seized from the premises of the land
broker Shri Deepak Mehta on 21.9.95. Copy is
available as Annexure to the assessment
order. It contains some calculations
primarily by way of multiplications of two
figures which claimed to be rates and
measurements of the land in question and
they are obviously the probable values for
the land at some stage of negotiations. In
the assessment order of Nila dated 29.8.97
the DCIT, S.R.1 (of Income Tax Rules, 1962), has analysed the contents
and the statements in a much more thorough
fashion than done by the Assessing Officer
of this assessee in the assessment order
dated 30.9.97. We agree with and uphold the
findings given in that assessment order
dated 29.8.97 that the cash component
actually involved in this deal was Rs. 84.81
lacs and not Rs. 87.22 lacs. Further, there
is lot of force in the plea taken on behalf
of the assessee that the original owners
were identifiable only if the Department had
tried to do so and the assessee had done his
best by providing the names particularly
when admittedly the cheque payments were
made to them directly. In the light of the
trust of the arguments of he learned
Advocates recorded in para-7 above and our
observations thereon as contained in para-9
above we have no hesitation in holding that
on the facts and circumstances of this case
it is unreasonable to infer that the whole
sum of cash payment of Rs. 84.81 lacs was
pocketed by the assessee, the point is that
the original of cash component passing on
the land deals. Proceeding on this premise
one has only to imagine and estimate what
should be regarded as reasonable profit to
the assessee. Moreover, the statement of
the appellant is main basis for making this
addition and accordingly Assessing Officer
cannot be allowed to approbate and reprobate
at a later stage – while he has relied upon
those part of the statement which favour the
revenue but conveniently ignored those
portions which favour the assessee. 
16. On the facts and in the circumstances of
the case we hold that the profit admitted by
the assessee is reasonable and hence the
addition required in respect of this land
deal has to be restricted to Rs. 32.70
lacs.”

12.2. With regard to Sangvilla land deal, the
Tribunal has observed in para 40 to 42 as under :
“40. Para marked 5.6 of the assessment order
covers “other land dealings” under the
heading ‘A’ on page 62 he considers Sung
villa Land bearing F. P. No. 259. The
Assessing Officer has added Rs. 70 lacs for
unexplained investment by the assessee by
way of payment to Shri G. C. Patel and has
also added Rs. 7.5 lacs for half share of
the brokerage on this land. Assessee's
contention is that he was merely one of the
brokers for this land deal and hence there
is no question of his giving Rs. 70 lacs
from his own resources. His claim is that
the said sum of Rs. 70 lacs was first
received form the prospective buyers of the
land and then passed on to Shri G. C. Patel.
Hence according to him it is no includible
in his total income. In regard to brokerage
his point is that he hoped to get the
brokerage but really he had not got it and
thereafter the whole deal gets lapsed
consequent upon the search and seizure
operation on 21.9.1995. His alternative
argument is that brokerage eve if due to him
was not actually received and as he follows
cash basis it was not taxable in his hands. 
41. Before us in the oral and written
submissions respective stands are taken by
the parties and our attention has also been
drawn to that particular entry in the seized
papers. 
42. We have very carefully perused the
contents of the relevant seized paper and
also considered the rival submissions. On
top of seized paper No. 105 of Annexure –
A/1 found from the premises of Shri Suresh
Patel on 21.9.1995 there is a sort of
disjointed entry of Rs. 70 lacs declared to
be pertaining to this land. We call it
disjointed because before this entry there
are three other entries whose total is taken
but this particular entry of Rs. 70 lacs has
been left out of that total though recorded
along with those three entries and in the
same fashion. We have already had an
occasion of analysing the remaining entries
of that sheet in connection with Silver Arc
Land. We have dealt with the entries of that
sheet as not indicative of any conclusive
deals or receipts and payments but appear to
be mere recordings for the understanding of
position at a particular point of time.
Coupled with the fact that these sheets are
not found from the assessee's premises nor
are they in his handwriting – they do not
prove anything either. All the same the
assessee has admitted in his statement that
he paid Rs. 70 lacs but along with that he
has also stated that he was only a broker in
the land and passed on that money of Rs. 70
lacs after receiving it from the prospective
buyers. The Department disbelieved this part
of the statement of receipt from the
prospective buyers and main reason given in
the assessment order regarding this is in
para (v) on page 64 to the effect that “the
assessee could have named the person to whom
the land was sold and other details of rate
etc.” This assessee's argument on this
aspect is that such questions were never put
to the assessee and the only question asked
was as reproduced on pages 63 and 64 of the
assessment order. Therefrom it is clear that
this question was not asked and hence the
assessee cannot be faulted for not
furnishing it. On the face of it the
assessee earned a brokerage and it is common
knowledge that brokers are not expected to
investment their money. They bring the
parties together and the prospective buyers
pay to the prospective sellers may be
through the broker. We have no hesitation in
inferring that either from the seized paper
or from the statement which constitute the
only basis for Departments inference it
cannot be sustained. The whole addition of
Rs. 77.5 lacs is deleted.”

SUBMISSIONS OF THE REVENUE FOR QUESTION NO.3

12.3 Referring to the aforesaid findings of
the Tribunal, the learned senior counsel for the
Revenue submitted that Tribunal erred in deleting
additions, though the assessee failed in
discharging his primary onus. Attention was
invited to the observation made by the Tribunal
with regard to Amrakadam land in para No. 14 by
rejecting the contention made on behalf of the
Revenue that the complete address of the original
owners were not furnished by observing that the
cheque payments made to the original owners, who
are identifiable and the assessee had given the
names and Vejalpur was not such a big area that
the person could not have been identified; only
if the Department tried to locate/identify them.
It was submitted that the Tribunal treated the
names given by the assessee of farmers in
Vejalpur land as the complete information.

12.4 The learned senior counsel for the
Revenue relying upon such observation made by the
Tribunal submitted that the impugned order is a
perverse order as there is an erroneous
appreciation of facts on record by excepting the
contention of the assessee that only the names of
the farmers in the Vejalpur area would amount to
furnishing complete information by the assessee
by drawing adverse inference against the Revenue
that it has not tried to verify such information
at all.

12.5 The learned senior counsel further
pointed out that the Tribunal has erred in
shifting the onus to prove on the Revenue when
admittedly the assessee failed in discharging
primary burden to give full details of the
farmers apart from their names and the area.

12.6 It was therefore, submitted that the
order of the Tribunal is absolutely perverse with
regard to the finding in respect of the two land
deals of Amrakadam and Sangvilla.

SUBMISSIONS OF THE ASSESSEE FOR QUESTION NO.3

13. On the other hand, the learned senior counsel
appearing for the assessee submitted that the
Tribunal after appreciation of evidence on record
has given a finding of fact and the Revenue has
failed to point out as to what material facts are
omitted to be considered or any irrelevant
material is considered to arrive at finding of
fact by the Tribunal so as to come to the
conclusion that the finding of fact arrived at by
the Tribunal with regard to the two land deals at
Amrakadam and Sangvilla are perverse.

13.1 The learned senior counsel has relied
upon the following decision :

(i) Referring to the decision in the case of
Commissioner of Income-tax v. Varinder Rawlley
reported in [2014] 51 taxmann.com 524 (Punjab &amp;
Haryana), the learned senior counsel for the
assessee submitted that the Punjab and Haryana
High Court has held that when the assessee has
entered into transaction by cheque and the
details of information is given by the assessee
then it was the duty of the Assessing Officer to
directly make an inquiry and when no inquiry is
made by the Assessing Authority to ascertain the
factum of clearance of cheque from the bank,
the Court held that the assessee has sufficiently
discharged the burden which lie upon it to
explain the nature and the source of credit entry
appearing in his accounts and the burden clearly
shifted in that case on to the Department to
prove to the contrary.

(ii) Similarly, the Allahabad High Court in the
case of Commissioner of Income-tax Meerut v. Smt.
Sadhana Jain reported in [2014] 45 taxmann.com
432 (Allahabad) has held that Once the assessee
furnishes the evidence in nature of cheques,
their dates, amounts, particulars of banks and
addresses of persons who were stated to have sold
shares had been furnished by assessee, burden of
assessee stood discharged.

13.2 It was therefore, submitted that in the
facts of the case, the Tribunal has found that
the complete information was provided by the
assessee with regard to the payments made to
farmers and the Tribunal has rightly held that
the burden cast upon the assessee has been
discharged as the Assessing Officer has failed to
carry out any further enquiry to identify the
person or has failed to take any further steps
for identifying the person, it cannot be said
that the impugned order of the Tribunal is
perverse. It was therefore, submitted that as the
Tribunal has come to the finding of fact on the
basis of the materials on record, such finding
cannot be said to be perverse or has been
contrary to the evidence on record with regard to
the two land deals Amrakadam and Sangvilla.

OPINION FOR Q.NO.3 
14. Having heard the learned counsel for the
respective parties and having gone through the
materials on record, with regard to the
controversy raised vis-à-vis, the Question No.3
to find out whether the findings given by the
Tribunal are perverse or not, in view of the
materials available on record, it would be
necessary to refer to the findings arrived at by
the Assessing Officer in respect of two land
deals i.e. Amrakadam and Sangvilla. 
14.1 The Assessing Officer with regard to the
land deals at Amrakadam situated at Vejalpur,
Survey No.1196 has observed in para 4.4 of the
assessment order to make addition of Rs. 87.22
lacs for the A.Y. 1994-95 reads as under : 
“4.4 Second land deal of Vejalpur land Survey
No. 1196 
4.4.1 In the show cause notice dt. 14-8-
1997 vide para 6 query was raised from the
assessee as under : 
“Other land transaction for land at FP
No. 1196 Nr. Ramdev-pir-ni-tekro
belonging to Amarkadam Co-operative
housing society was entered between you
and Shri Saurabh Shah of Saumya
Construction Co. the deal was finalised
at the rate of Rs. 1125 per sq. yd. for
area of 12116 sq. yd. along with one
more land pieces of 242 sq. yd. at total
consideration of Rs. 138.71 lacs. You
have stated to have received Rs. 90.250
lacs in cash and remaining amount of Rs.
48.46 lacs is stated to be receivable by
cheque. Shri Shaurabh Shah in his
statement 8-12-95 and 9-1-1996 has
confirmed the delay and payment in cash.
IN your statement dt. 7-2-1996 reply to
Q.No.3 you also reconfirmed the deal in
the circumstances. Your are required to
show cause as to why cash received of
Rs. 90.25 lacs should not be added to
your income as undisclosed income.
Further please produce evidence and
entries regarding cheque payment
received from this land transaction”.
4.4.2 The assessee replied the show cause
notice vid para 4.2 to para 4.5 vide his
letter 11-9-95, the relevant portion is
extracted as under : 
“4.2 (d) That, in the same statement,
upon being so asked, I have there and
then stated that the rights in the land
in question had been acquired by me only
about a month before the deal of sale to
Saumya Construction Pvt. Ltd. was struck
and that except for the initial payment
of Rs. 5 lacs which I had to the land
owners in cash, all the remaining
payments that had to be made to them in
cash had been made out of the cash
payments received by me from Saumya
Construction Pvt. Ltd. Since the time
lag between the acquisition and sale was
very short, the payment by cheques to
the land owners came to be made directly
by the ultimate purchaser Saumya
Construction Pvt. Ltd. through the
medium of the Society. 
4.2. (e) That, as explained there and
then in my aforesaid statement, I had
really got only the surplus of Rs. 32.70
lacs which this transaction had
generated – because the buyer for the
land which had been agreed to be
acquired from its owner at Rs. 851 per
sq. yd., could found only within a
matter of one month @ Rs. 1125 per sq.
yd. so that the entire payment – both by
cheques and cash, that was payable to
the landowners was arranged directly
form the buyer to the landowners. 
4.4 A perusal of the above would also
satisfy your good selves the reason for
there being minor differences in the
figures which have been mentioned in
your letter presumably on the basis of a
cursory look at the concerned material.” 
4.4.3. In course of discussion on 15-09-97
the Authorised Representative of assessee
was requested to furnish complete names and
address, date(s) and payment to farmers
along with their confirmation. In reply
there to the assessee has simply furnished a
list of names according to which recorded
payment was made. During hearing on 19-09-
97 it was stated by Authorised
Representative present that, nothing further
was to be added / submitted. 
4.4..5 In view of above facts and as
admitted by assessee himself addition of Rs.
84.81 is liable to be made to the total
income of the assessee. Here it is
worthwhile to mention that Shri Saurabh Shah
in his statements recorded by the ADIT
admitted Rs. 84.81 lacs as payments in cash
to Shri Manoj Vadodariya on account of land
S.No.1196. As stated earlier one more piece
of land 242 sq. yd. was agreed to be sold in
cash at lumpsum amount of Rs. 2,41,000/-.
Assessee has not furnished any comment on
this land transaction hence considering
assessee's own admission of Rs. 87 lacs in
his statement and other facts of the case as
apparent from the seized papers total
addition of Rs. 87.22 lacs (84.81 + 2.42) is
made to the income (which includes Rs. 84.81
received from Shri Saurabh Shah + 2.41 lakhs
received on land transaction pertaining to
plot of 242 sq. yd. Addition of Rs. 87.22
lacs is therefore made in the assessment
year 1994-95 in the hands of the assessee on
substantive basis. 
(ADDITION A.Y. 1994-95 – RS. 87.22 LACS)”

14.2. Similarly with regard to the land deals
of Sangvilla land bearing Final Plot No.259, the
Assessing Officer has observed as under :- 
“A) SANGVILLA LAND BEARING F.P. NO. 259.
i) The first entry on the front side of
page, 105 refers to payment made of Rs. 70
lacs in cash by Shri Manoj B. Vadodariya to
Shri Govind C. Patel for purchase of land
known as Sangvilla land bearing F. P. No.
259. The narration on the page is as under: 
“70 – 259 – Pete Chukvya Manoj”. This
narration as explained by Shri Suresh Patel
in Answer to Q. 28 of statement dated, 22-9-
95 is as under : 
i) “The first entry of 70 on front side
of page. 105 refers to payment of Rs. 70
lacs in cash made by Shri Ahmedabad
(Director of Neela Housing
Infrastructure Pvt. Ltd.) to Shri Goving
C. Patel of Ganesh Housing Corporation
for purchase of land for Sungilla
Society, F. P. No. 259. The land is
situated Nr. Bodakdev, No. Judge's
Bunglow.”

(Emphasis added) 
ii) In the statement dt. 30-10-1995 in reply
to Q.4 Shri Suresh Patel was specifically
asked to state the status of land of F.P.
No. 259 as on that date. In reply to Q,4
Shri Suresh Patel stated as under :
“There is a litigation in this land
hence it is still open plot of land.
Shri Manoj Vadodariya has approx., paid
Rs. 70 lacs for this land. No cheque
payment is made.”

(Emphasis added) 
ii) In view of this clear position the
assessee was asked to explain the soruces of
the investment vide para 8 of the show cause
notice dated, 14-8-1997 under : 
“Para 8 : - Page 105 : seized from the
residence f Suresh Patel contains a
summary of land transaction between you
and Govind C. Patel. An amount of Rs. 70
lacs stated as paid by you in cash to
Govind Patel for Sangvilla land was
found entered. Please explain the source
of payment by you.” 
iii) The assessee replied vide para No.11 of
11-9-1997 as under : 
“Para.11.2 : In so far as first
transaction of Rs. 70 lacs is appearing
on seized paper 105 on which I have to
draw your attention to the relevant
portion of may statement recorded on 14-
11-1995 attended vid A.22. What is that
shows is the true nature of
transaction.” 
iv) The assessee's reply is not clear
and he has simply referred to reply to Q.11
(2) as contained in Annex. 22 of his letter,
and hence vide order sheet entry dt. 15-9-
1997, the assessee was again asked to
explain the sources of payments of Rs. 70
lacs as clearly coming out from the seized
page 105 and its narration and as explained
by Shri Suresh Patel and stated by the
assessee in reply to Question No.7 &amp; 8 of
statement dtd. 14-11-95 and 07-2-96
respectively. the assessee has not made any
further submission and submitted on 19-9-
1999 that they have nothing further to add
is addition to whatsoever have been said in
the written submissions. This Clearly shows
the attitude of assessee during the
assessment proceedings and evasive replies
about clear transactions. The relevant
portion of statements dt. 14-11-1995 is
reproduced here under : 1m10
“Qn. Please state as per your money, how
many transactions of land you have
entered through Shri Suresh Pate.” 
Ans. I entered into following
transactions through shri Suresh Patel
who is broker of Shri Govind Patel of
Ganesh Housing Society. 
i) Aram Society -- 
ii) Bodakdev F. P. No. 259 
“I and Suresh Patel acted as brokers in
the Bodakdev F.P. No. 259 land. I
further sold this land through another
broker. the sale consideration was
received by me and out of that I paid
Rs. 70 lacs to Shri Govind C. Patel
through Shri Suresh Patel. We were to
receive brokerage of Rs. 15 lacs which
is pending till date. My share of
brokerage was Rs. 7.5 lacs and share of
Sureshbhai in the brokerage was Rs. 7.5
lacs. 
v) The above admission makes it further
clear that payment of Rs. 70 lacs was made
to Shri Govind C. Patel for the land in
question. The assessee could definitely name
the person to whom it was sold, to any case
he not give the address of the purported
buyer and at what rate and when the land was
sold. No confirmation was furnished from the
alleged purchaser also. Further no attempt
at all has been made to furnish
clarification, details or evidence to
substantiate and clarify this matter even
during assessment proceedings. shri Suresh
Pate in his statement has clearly and
categorically stated that the assessee paid
Rs. 70 lakhs in cash for purchase of land to
Shri G. C. Patel. As further sale of land
and receipt of money is totally
unsubstantiated and this claim is rejected.
It is accordingly held that payment of Rs.
70 lacs is made by Shri Manoj Vadodariya out
of his undisclosed income. An addition of
Rs. 70 lacs is made as unaccounted
investment in the Asst. Year 96-97. Further
Shri Manoj Vadodariya has himself stated
that he was to receive brokerage of Rs. 7.5
lacs on the deal, hence on accrual basis an
addition of Rs. 7.5 lacs is made as
unaccounted income on the transaction of F.
P. No. 259 as referred above.
(Unaccounted investment of Rs.
70,00,000/- A.Y. 96-97: 
Unaccounted income of Rs. 7.5 lacs
A.Y. 96-97)”

14.3 On comparison of the aforesaid finding
given by the Assessing Officer with that of the
Tribunal in respect of two land deals, it appears
that the Tribunal has discarded the same on the
ground that furnishing the name in the area of
farmers by the assessee would be enough to
identify the person as Vejalpur is not such a big
place that the person could not have been
identified. Such finding arrived at by the
Tribunal in para 14 of the impugned order is
nothing but a perverse finding because it is not
possible to find out to locate or identify person
only because he belongs to a particular area in
absence of any specific address. The Tribunal has
committed grave error by shifting the burden on
the department on the basis of such vague
information provided by the assessee. Thus the
very basis and foundation of the Tribunal to
delete the addition made by the Assessing Officer
is erroneous and perverse as the Tribunal has
considered the irrelevant factor to arrive at
such conclusion. 
14.4 Similarly with regard to the Sangvilla
land deal, the Tribunal in para 42 has branded
the entry in the ceased papers as disjointed on
the ground that the entries of that sheet at
Annexure-A/1 found from the premises of Shri
Suresh Patel on 29.09.1995 is of Rs. 70 lacs is
not indicative of any conclusive deal or receipt
in payments but appears to be mere recordings for
the understanding of position at a particular
point of time. It is not possible to understand
on what basis the Tribunal has drawn such
inference in absence of any corroborative
evidence in support of such findings when the
assessee has admitted in his statement that he
paid Rs. 70 Lakhs after receiving the same from
the prospective buyer, but such statement was not
believed by the Assessing Officer as the assessee
failed to provide the name of the person to whom
the land was sold as well as the rate at which
such land was sold. The Tribunal further has
erroneously and perversely held that as question
was not asked to the assessee, the assessee
cannot be faulted for not furnishing the details
and the person to whom the land was sold and only
because the assessee was a broker and he was not
expected to make investment of his money. It
appears that such findings are arrived at by the
Tribunal only on the basis of the presumption and
assumption and the findings given in para 42 are
perverse as the same are not based on the
materials on record but are arrived at after
taking into consideration the irrelevant factors
that the broker only bring the parties together
and the prospective buyers pay to the prospective
sellers may be through the broker. The Tribunal
has therefore; committed error in drawing
inference that either from the seized papers or
from the statement which constitute the only
basis, the addition cannot be sustained.

14.5 We are therefore of the opinion that the
Tribunal has arrived at perverse findings
contrary to the evidence on record in case of two
land deals of Amrakadam and Sangvilla without
there being any evidence on record to arrive at
such findings to delete the addition made by the
Assessing Officer, which is supported by the
cogent evidence on record.

14.6 In that view of the matter, the Question
No.3 is also answered in negative i.e. in favour
of the Revenue and against the assessee, holding
that the order of Tribunal is perverse and
contrary to the evidence on record in case of
Amrakadam and Sangvilla land deals based on no
evidence at all.

15. In view of the above, the Reference stands
disposed of accordingly as allowed as all the
three questions referred are answered in favour
of the Revenue and against the assessee. 

(J. B. PARDIWALA, J)

(BHARGAV D. KARIA, J)

3. The Tribunal accordingly forwarded the
statement of case along with paper book for
opinion of this court on the above questions of
law on the facts of the case stated therein.

4. The short facts of the case are that the
assessee, who is an individual and dealer-cum-
broker in lands was assessed under Section 158BD (of Income Tax Act, 1961) on the basis of the seized
documents and various statements recorded under
Sections 132 (of Income Tax Act, 1961) and 131 (of Income Tax Act, 1961), 1961 during the
course of search and seizure operation on
21.09.1995 at the premises of two other land
brokers one Shri Deepak Mehta and other Shri
Suresh Patel.

4.1 The Assessing Officer completed assessment
for the block period determining the total income
of Rs.34,63,47,179/- vide order dated 30th
September 1997.

4.3 The Tribunal vide order dated 12th June 1998
allowed partial relief to the assessee by
deleting some of the additions made by the
Assessing Officer.

4.4 The Revenue as well as the Assessee both
filed Reference Applications against the order of
the Tribunal, which were disposed of by the
Tribunal vide order dated 30.11.1998 in Reference
Application No.660 and 69 (of Income Tax Act, 1961)6/Ahd/1998, rejecting
both the Reference Applications.

5.1 The assessing officer did not accept the
explanation given in the reply furnished by the
assessee as observed in Para 4.4.4 of the
assessment order, which reads as under: 
“i) Shri Dipak Mehta in his statements
categorically stated that full
considerations in cash Rs. 90,25,069/- was
agreed with the assessee. 
ii) The assessee has admittedly accepted
that the transaction was held between him
and Saumya Construction Co. and as replied
in his statement he has received Rs. 87 lacs
in cash and Rs. 48 lacs were paid by cheque
to the farmers directly by Saumya
Construction through society. 
iii) The assessee was asked to file the
confirmation letters of alleged cash
payments to the farmers but he has neither
submitted the addresses of the farmers in
full and nor confirmation letters in support
of cash payment to the farmers for purchase
of land at the rate of 851 per sq. yd.
including cheque payment has been filed. 
iv) The amount of Rs. 32.70 lacs claimed as
surplus in the hands of the assessee is not
acceptable as Shri Saurabh shah, Shri Dipak
Mehta and assessee himself had admitted to
have paid and received cash payment
respectively. Since no evidence for further
cash payment to the land owners is
furnished, therefore assessee's contention
is not acceptable. 
v) No specific date of payment of amount
and other corroborative evidences for
subsequent payments to farmers in cash are
given hence assessee's plea is unfounded and
far from truth and apparently has been
advanced to reduce the undisclosed income as
done on one pretext or another in respect of
other land deals also and hence self serving
claim is rejected.” 
5.2 The Assessing Officer rejected the claim
of set off made by the assessee in para 10 of the
assessment order, which reads thus: 
“10. CLAIM OF SET-OFF 
10.1. The assessee in his writ submission
filed has not pressed any claim for set off
of amount received against land deals,
towards undisclosed investment made. The
assessee despite specific requisition did
not deliberately furnish the total wealth
statements as on 31-3-1993, 31-3-1994, 31-3-
1995 and 21-9-1995. The assessee has not
furnished any other details or particulars
about availability of funds from such
unaccounted land deals in the course of
present assessment proceedings. It is
settled position of law that for pressing
any claim based on facts, the onus lies on
the assessee to furnish the basic and
primary facts. Hence in absence the same
the claim cannot be at all considered.
Further still transaction for which
undisclosed income has been added and
additions have been made for unexplained
investment, it is to be noted that the
amount of Rs. 2.53 crores offered to be
taxed in his hands concerning land deals at
Ramdev-Pir-No-Takro between Nila Housing &
Infrastructures Pvt. Ltd. And Samuya
Construction Co. Ltd., the amount has been
protectively taxed in the hands of assessee
and substantial addition has already been
made in the hands of the company. Thus those
funds are prima facie not available for
planning any further investments made by the
assessee in his individual hands business
and has been accordingly disallowed /
restricted for reasons discussed in the
Asst. Order passed. 
10.2. Coming to the other investment as
emerging from the appreciation of seized
papers most of the investments have been
made during the F.Y.1994-95. On money
receipts pertaining to the second land deal
of Ramdev-pir no -Tekro were received
during the F.Y. 1993-94 The entire on money
payment from RDIL at Rs.12.80 crores has
been received only from April 1995 onwards
till September, 1995. Similarly the
undisclosed income determined for investment
and profit in remaining two land deals at
325, 292 have been also determined for part
of search year falling in F.Y.95-96 and the
brokerage amount, according to assessee’s
own version was not received and was
receivable only. Thus on prima facie merits
also assessee is not entitled to any set off
of unaccounted income against the
unexplained investment made. Further, it is
to be clarified that considering the volume
of huge land deals entered into by assessee
it cannot be automatically presumed that
Income received by way of on money receipts
was available for investment in the land
deals and was not otherwise invested.
Hence, the assessee is not entitled to any
claim of set off and all the income as well
investment determined are liable to be
considered without any set off against each
other. 
11. UNDISCLOSED INCOME OF ASST. YEAR 1995-96 
11.2 So also unexplained cash credit has
been determined at 11.85 Lacs as the
assessee has failed to discharge his onus
for establishing the identity of the
creditors, genuineness of transactions and
credit worthiness of creditors as per
requirement of section 68 (of Income Tax Act, 1961) and hence, same
has been accordingly order. Accordingly
interest claimed on the same of
Rs.1,40,549/- has also been held to be
inadmissible. 
11.3. The overriding provisions of 158 BD
required that income for the asstt. year for
which return has not been filed till the
date of search and the date has expired,
entire income shall be treated as
undisclosed. The due date in the case of
assessee is prima facie 31.8.1995 as noted
from his return of income for A.Y.1994-95
and prima facie books of accounts of his
proprietary concern are not required to be
audited. Hence, the entire income for
Asstt. Year 1995-96 is required to be
treated as undisclosed income for the
purpose of Block Assessment Proceeding as
determined in the Asstt. Order passed
U/s.143(3) (of Income Tax Act, 1961) for A.Y. 1995-96.

5.3 The Tribunal however, allowed the claim
of the assessee for adjustment of subsequent
payments against the earlier receipts by
observing in para 46 of the order, which reads
thus: 
“46. In para 10 on pages 101 and 102 of
the assessment order heading given is “Claim
of Set Off” and it is rejected. The crux of
the matter is that the assessee has claimed
that he has admitted to the receipt of
certain sums in cash and also to the
payments of certain other sums in cash. The
Assessing Officer has drawn inference in
regard to receipts and payments of
individual items but in the end has taxed
the gross receipts plus gross payments. He
has not allowed adjustment of subsequent
payments against the earlier receipts of
cash which becomes otherwise available with
the assessee. It means that assessment
order proceeds on the footing that when the
assessee makes a payment his cash balance is
Nil and, therefore, whatever he has paid he
has done so from his income from undisclosed
sources on the respective date(s). The
assessee's contention is that he has
admitted to the existence of cash receipts
and payments and a reasonable view demands
that subsequent payment should be presumed
to be made out of the cash available from
the earlier receipts, if any. In Income-tax
quarters it is generally referred to as cash
flow statement and it will not be out of
place to mention that even in the clubbing
of transactions of Hundi loans the
Department used to prepare such cash flow
statement and then tax the peak amount. We
are mentioning it because in those cases
ledger accounts existed in different names
and consolidation of all the ledger accounts
meant that the repayments made to one of the
alleged creditors was regarded available to
this very assessee for introduction of
credit on a subsequent date in another name.
The assessee's case obviously stands on a
better footing that they are undoubtedly
admitted and/or treated as his own moneys
received by him and paid by him. So in
principle it is difficult to uphold the
Department's view. We are not impressed by
the plea mentioned in para 10.2 on page 102
that income received by way of on-money
receipts cannot be regarded as available for
investment in land deals. The Assessing
Officer suspects that it was “otherwise
invested”. In our considered opinion, in is
not reasonable or judicious approach. There
cannot be any reasonable cause for rejecting
the assessee's claim of adjustment of
subsequent payments against earlier
receipts. Accordingly ground No.15.1 & 15.2
are allowed.” 
SUBMISSIONS OF REVENUE FOR Q.NO.1 
6. The learned senior advocate Mr. M.R. Bhatt
assisted by Ms. Mauna Bhatt, the learned standing
counsel appearing for the Revenue submitted that
no peak credit theory would be applicable and the
entire unaccounted gross receipts are to be taxed
along with the gross payments/expenses because,
though the onus lies on the assessee, he failed
in providing any evidence and in absence of any
evidence indicating payments made/expenses
incurred by assessee, theory of peak credit
cannot be applied. It was submitted that there
is no nexus between the expenses and receipts and
therefore, telescoping could not be proved as the
theory of telescoping would be applicable when
there is nexus between unaccounted receipts and
unaccounted expenses.

6.2 It was submitted that for example, the
evidence available on record indicates that Rs.20
Crore was received by the assessee between
specified period which was not recorded in the
books of accounts of the assessee and therefore,
the same would be unaccounted receipt, whereas
the evidence available on record indicates
payments made during that period which were
unaccounted payments/expenses, therefore, in such
case, on account of having nexus between receipt
and payment/expenses, theory of telescoping would
be applicable. However, the attention of the
Court has been invited to the activities of the
assessee as recorded by the Assessing Officer to
point out that the assessee was dealing with real
estate especially land either on his own or as a
middleman-broker, or rendering various land
related services, which may be desired by the
investors like clearances under Land Ceiling Law,
N.A. permission etc. It was pointed out the
assessee was a sophisticated broker in real
estate as per his own statement in his letter
dated 11.09.1997 and therefore, in absence of any
evidence showing nexus or co-relation between
unaccounted cash receipts and payments, assessee
cannot be given benefit of telescoping.

6.3 The learned senior counsel further
referred to the non-cooperation of the assessee
during the assessment proceedings as recorded by
the Assessing Officer by detailed discussion with
regard to various land deals of the assessee. The
learned counsel therefore, submitted that though
the onus lies on the assessee, the assessee
failed in providing any evidence with regard to
the expenses/payments made and therefore, the
unaccounted cash receipts and payments are
required to be taxed under Sections 69B (of Income Tax Act, 1961) and 69C (of Income Tax Act, 1961),1961 as unexplained
investment/expenditure .

6.4 The learned advocate submitted that the
Tribunal has not considered the provisions of
Sections 69B and 69C of the Act, 1961 in proper
perspective and in support of his contentions
reliance was placed upon the following decisions:

(iii) Commissioner of Income-tax v. Banarsilal
Dhawan reported in [1977] 109 ITR 360 (Madras),
wherein it is held as under:

Referring to above decisions, it was
submitted by the learned senior advocate Mr.
Bhatt that the tribunal has committed an error in
allowing set off of gross unaccounted payments on
certain transactions against unaccounted receipts
for computing unexplained investment made by him
in accordance with section 69B (of Income Tax Act, 1961) of the I.T
Act,1961.

(i) Referring to this decision of the Supreme
Court In the case of Anantram Veerasinghaiah &
Co. v. Commissioner of Income-tax reported in
[1980] 123 ITR 457 (SC), it was submitted that
the Supreme Court has held that the mere
availability of fund, in all cases cannot imply
that the assessee has not earned further secret
profits of undisclosed income during the relevant
assessment year, but at the same time, it is a
matter of consideration by the taxing authority
in each case whether the unexplained cash
deficits and the cash credits can be reasonably
attributed to a pre-existing fund of concealed
profits or they are reasonably explained by
reference to concealed income earned in that very
year.