* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 30.08.2018
Pronounced on : 18.09.2018
+ ITA 599/2004
COMMISSIONER OF INCOME TAX ..... Appellant
Through: Sh. Rahul Chaudhary, Sr. Standing Counsel
with Ms. Vibhooti, Advocate.
versus
M/S. ANSAL PROPERTIES AND INDUSTRIES ..... Respondent
Through: Sh. M.S. Syali, Sr. Advocate with Sh. Satyen
Sethi, Sh. Arta Trana Panda, Ms. Gargi Sethee and Sh.
Vikrant, Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A.K. CHAWLA
MR. JUSTICE S. RAVINDRA BHAT
%
1. Following questions of law arise for consideration in this appeal under
Section 260A of the Income Tax Act, 1961 by the Revenue:
1) Whether the Tribunal was correct in law in holding that
the amount of Rs.42 crore was taken by the assessee as security
and the same cannot be termed as undisclosed income and as
such outside the purview of block assessment under Chapter
XIV-B of Income Tax Act, 1961?
2) Whether the Tribunal was correct in law in confirming
the order of CIT(A) and thereby deleting the addition of Rs.30
crore made by the. Assessing Officer on account of unexplained
cash payment made by the assessee to Sh. S.K. Jatia to acquire
land in village Tigra?
3) Whether the Tribunal was correct in law in confirming
the order of CIT(A) in reducing the addition of Rs.45,08,971/-
ITA 599/2004 Page 1 of 30
to Rs.6,35,525/, made by the Assessing Officer, on account of
unaccounted cash recorded in seized cash slips ignoring the
statement recorded during the proceedings which revealed that
this cash was over and above the amount recorded in the books
of accounts?
4) Whether the Tribunal was correct in law in confirming
the order of. CIT(A) deleting the addition of Rs.92 lacs made by
the Assessing Officer on account of commission paid to M/s
Televista Electronics Limited on sale of plot in Sushant Lok to
M/s Vatika Green Field Limited ignoring the relevant
provisions of section158B(b) of the Income Tax Act, 1961?
5) Whether order passed by Income Tax Appellate Tribunal
is perverse in law as well as on facts in respect of the items
referred to in the questions hereinabove?"
Re: Question No.1
2. The facts in brief in respect of this question are as narrated below; the
Assessing Officer (AO) brought to tax an amount of `42 crores for the
alleged suppressed sale proceeds of property at 27, Kasturba Gandhi Marg,
New Delhi (the "property" or "the premises"). The assessee [hereafter
"APIL"] had entered into an agreement with the owner of (the property) Late
Dr. Raghunath for development of the property on 18.03.1971. A further
agreement was entered into between the legal heirs of Late Dr. Raghunath,
tenants/other parties and the assessee under which property was assigned for
consideration to the assessee for construction of a commercial complex. The
assessee, in 1980 filed a suit for specific performance before this court.
During the pendency of the suit, the owners of the property sold the property
to M/s. Mahajan Industries (P) Ltd. (as presently known- called hereafter as
"Mahajan"). The suit for specific performance of agreement dated
06.07.1977 was decreed in favour of the assessee on 17.09.1991 against
ITA 599/2004 Page 2 of 30
which Mahajan preferred an appeal. An out of court settlement was arrived
between the assessee and Mahajan, the terms of which were set out in MOU
dated 27.08.1994; under that the asseessees share in multistoreyed complex
to be built (with its funds) was to be 40%. On 01.04.1995, the assessee
entered into an agreement with M/s Verka Investments Pvt. Ltd. ["VIPL"
hereafter] whereby the latter acquired (from the assessee) the right of 40% in
built up area along-with the obligation to develop and constitute
multistoreyed complex for a total consideration of ` 42 Crores. Thereafter, a
confirmatory agreement was entered into amongst the assessee, VIPL and
Mahajan, whereby the latter (Mahajan) accepted that the assessees
obligation to construct and complete the commercial complex shall be
carried out by M/s VIPL and that after deposit of ` 40 Crores with the
assessee under the agreement dated 01.04.1995, M/s VIPL shall be entitled
to book and sell 40% of total built up area in its own name.
3. On 10.02.2000, a search was carried out on Ansal Group of companies
and its Directors (including APIL and its directors). During the course of
search, a 'Note" (Annexure A -3) was found and seized from the residence of
Shri Deepak Ansal, Managing Director, Ansal Housing and Construction
Ltd. The 'Note' related to tax provision in respect of the property at 27,
Kasturba Gandhi Marg. The AO reproduced the said confidential 'Note' in
the assessment order. It is reproduced as under:
"NOTE ON TAX PROVISION - PROPERTY NO. 27, K.G.
MARG, NEW DELHI.
APIL was holding development rights for erecting a multi-
storeyed commercial building on captioned plot under the
ITA 599/2004 Page 3 of 30
Agreement dated 6th July, 1977 with Shri Anand Nath and
others (Principal owners).
2. As per the terms of the said agreement, APIL was entitled
to 65% and principal owners to 35% of the total built
up/saleable area, which was to be constructed on the stated
plot.
3. The principal owners in violation of the agreement dated
6.7.1977 and during the pendency of a specific performance
suit filed by APIL against them in the year 1980, transferred the
said property with structure thereon to Mahajan Industries Ltd.
4. The stated suit for specific performance filed by APIL
was decreed by the Hon'ble High Court of Delhi in favour of
APIL in September, 1991 against which an appeal was filed by
Mahajans before the higher bench of the Hon'ble High Court.
5. In order to avoid likely prolonged litigation and
uncertainties of result, APIL, principal owners and Mahajans
arrived at an out of court settlement whereby APIL was entitled
to 40% and Mahajans to 60% of construction and development
rights on the said property.
6. APIL agreed to transfer its rights under a settlement to
M/s Verka Investments Pvt. Ltd., New Delhi at a total
consideration of Rs.52 crores.
7. During the relevant period the company was in dire need
of funds for liquidation of borrowings as well as an important
and crucial payment to HUDCO towards Ansal Plaza project.
Therefore, the proposed arrangement was planned from tax
point of view in order to defer the tax liability and as a part of
tax planning exercise, the total consideration was broken into
two parts and received under different agreements as
mentioned hereunder:-
(a) Rs.42 Crores as consideration to transfer, assign and sell
all the rights of APIL to the buyers under agreement dated
1.4.1995.
ITA 599/2004 Page 4 of 30
(b) Rs.10 Crores were received under three separate
agreements as booking amounts to purchase residential flats in
APIL's residential project "Celebrity Homes".
I. AGREEMENT FOR RS.42 CRORES
a) Out of total consideration of Rs.42 Crores, APIL had
already received an amount of Rs.40 Crores in the year 1995-
96. The remaining amount of Rs.2 Crores was also received in
ABL as interest free inter corporate deposit to be recovered and
paid to APIL at a later date.
b) The said amount of Rs.40 Crores as per the terms of the
agreement was received as security deposit for due and timely
performance of the obligations of buyer, which amounts to
95.23% of the total consideration.
c) The development and construction works on the said
property is to be completed within a period of 7 years, failing
which APIL is entitled to forfeit the entire amount of security
deposit as also to recover the remaining Rs.2 Crores which, in
fact, has already been received in ABL.
d) The mere reading of the terms of this agreement clearly
indicates and establishes that the whole purpose for going in
for this is to defer the income tax liability. After having received
95.23% of the total consideration, which is non-refundable
whether or not the building is completed, the total amount is
taxable in the year in which it was received.
e) Under these agreements, there is no clause by virtue of
which M/s Verka Investments (P) Ltd., can make claim of
refund of any part of consideration paid under the agreements.
Liability of development and construction of project is of M/s
Verka Investments Pvt. Ltd. and the company has no liability
whatsoever in this regard.
f) In the income tax assessments the entire amount of Rs.40
Crores is being carried over year after year as non-refundable
security deposit under this agreement. The assessing officers
have not gone into the details of the transaction as also the
ITA 599/2004 Page 5 of 30
agreement in detail otherwise the total amount can be liable for
income tax even in the assessment year 1995-96 and if it so
happens, the income tax liability including penalty and interest
on this amount would be much more than Rs.42 Crores i.e. the
total consideration under this agreement.
II. AGREEMENT FOR RS.10 CRORES
a) An advance aggregating to Rs.I0 Crores was received
under three agreements (Rs.4 Crores, Rs.3 Crores and Rs.3
Crores) as booking amounts against the sale in total of 108
residential apartments in the proposed Celebrity Homes project
of APIL. The total consideration was fixed at Rs.39 Crores to
be received in phased manner over a period of 24 months from
the date of signing of agreement. The first instalment of 20%
was due within two months from the date of agreement.
b) As per the terms of agreement if the buyer fails to make
payments as per agreed schedule, the agreement is to be
cancelled and determined and the entire booking amounts is to
be forfeited. Accordingly, as no payment was received
subsequently to the date of booking, the entire amount was
forfeited in June, 1995 as conveyed to the buyers vide our three
separate letters.
c) The buyer had also confirmed and agreed for forfeiture
of booking amounts by APIL as conveyed to us vide its three
separate letters of 9th Sept., 1995.
d) Therefore the entire amount of Rs.10 Crores was the
income of APIL for the year 1995-96, which could not be
accounted for in the books and has actually been accounted for
in the year 1998-99.
e) If this amount is treated as taxable income of 1995-96
i.e., the year in which it was forfeited, the likely incidence of
income tax on this amount would be at least Rs.15 Cr. including
the interest and penalties which are payable as per the
provisions of Income Tax Act.
ITA 599/2004 Page 6 of 30
8. In light of above submissions, the overall income tax
liability could be more than Rs.52 Cr. i.e., the total
consideration for sale and transfer of APIL's rights if the
assessing officers go into the colourable tax planning device by
lifting corporate veil to find out the exact and true of
transaction. However, if the income is managed to get assessed
in the year in which the same is accounted for, which is quite
unlikely, specially in the case of the amount of Rs.10 Cr.
received under the second agreement, the tax liability may even
be lower.
Keeping in view the fairness and reasonableness, our tax
department has assessed the minimum tax liability at Rs.25 Cr.
which is 50% of the total consideration.
CONCLUSION
While working out the networth of APIL, full amount of Rs.52
Cr. Has been taken as profit in the books and no tax has been
paid against it. Some tax provision on this huge income has to
be provided. This is an income which has already accrued and
is different from those incomes which are projected and yet to
accrue. Therefore, the provision of tax be made. The question is
what amount?
The company's tax department has therefore provided Rs.25 Cr.
as fair and reasonable tax liability while working out the
networth of APIL. This is being disputed. It is being suggested
that to defer the provision of this liability and whatever amount
becomes payable ultimately should be shared equally by all the
three. This uncertainty of future and the possibility of
recovering the amounts in future from AHCL and ABL is too
much of a risk for APIL. APIL does not want to leave anything
for the future but want to decide everything now and close the
chapter forever. The provisions of Rs.25 Cr. towards tax
liability is absolute minimum."
4. The Revenues position in the ensuing block assessment proceedings
was that the 'Note' stated that the proposed arrangement was planned for tax
ITA 599/2004 Page 7 of 30
point of view only to defer the tax liability. Out of total consideration of ` 42
Crores, the assessee had already received an amount of ` 40 Crores in the
year 1995-96 and the remaining amount of ` 2 Crores was also received in
M/s Ansal Buildwell Ltd. as interest free inter corporate deposit to be paid to
the assessee at a later date. Under this agreement, there was no clause by
virtue of which M/s VIPL could claim refund of any part of the
consideration paid under the agreements. The liability of development and
construction of the project was entirely of M/s VIPL and the assessee had no
liability whatsoever in this regard.
5. The AO after carrying out necessary investigation and on
consideration of the interpretation of 'Note' recovered during the course of
search also recorded statement of Sh. Yatinder Singh, Director of M/s VIPL,
Sh. Rakesh Mahajan of M/s Mahajan Industries Pvt Ltd., statement of Sh.
Suresh Ansal, statement of Sh. Gopal Ansal and after consideration of all the
above facts and the interpretation of the ,,Note issued questionnaire dated
11.10.2001 alongwith the notice under section 142(1) to the assessee. Sh.
Rajeev Wadhwa, Sh. Rakesh Mahajan and Sh. Yatindra Singh were also
subjected to cross examination by the assessee. The assessee filed detailed
replies dated 05.11.2001, 16.01.2002 and 19.02.2002 before the AO
explaining the matter in detail. The AO, however, did not agree with the
submission of the assessee and made the addition of ` 42 Crores in the hands
of the assessee in the block assessment.
6. The CIT(A), upon the grievance by the assessee considered the
submissions as well as the documentary materials on record which included
the agreement between the assessee and the VIPL on the one hand and the
ITA 599/2004 Page 8 of 30
note discovered during the search proceedings. The appellate Commissioner
set aside the amount of ` 42 crores brought to tax, holding firstly that since
VIPLs letter dated 25.09.1995 clearly stated that the cheque for ` 2 crores
was in mutually agreed terms, and that the said amount was received as
earnest money against the present and future projects, (which conformed to
the note discovered during the search proceeding and given that on the same
date, the last cheque was also issued to the appellant,) the intention of the
parties was to show the amount of `2 crores as part of sale consideration. It
was held that the said ` 42 crores then passed to the assessee, which could
not be claim it to be a security deposit. It was secondly held that the right to
refund relied upon by the assessee is an aspect the tax effect of which is to be
considered only when the contingency, i.e. the refund arises; thirdly that the
VIPL treated the amount of `42 crores as a consideration for acquisition of
development rights and as stock in trade in its books and not as an advance.
These clearly revealed the intention of the parties which was to treat the
amounts as sale consideration. The statement of VIPLs director too was
taken into account in this regard. It was further held that the liability of
obtaining necessary sanctions(for development and construction) was that of
VIPL as was the case with discharge certificate which was the liability of
Mahajan, towards VIPL. Therefore, as far as the assessee was concerned,
that sale transaction was complete and it was not entitled to postpone
showing accrual of income on account of sale of development rights in its
books of accounts. It was held that the assessees argument that it had no
right to forfeit the amount was immaterial since the consideration had passed
into its hands and the receipt was not in the nature of advance. The assessee
was successful in persuading the ITAT to accept its contentions. The ITATs
ITA 599/2004 Page 9 of 30
reasoning in its impugned judgment discloses that its decision was weighed
considerably by the phraseology of Section 158B(b) which defined what was
"undisclosed income". It held that since the assessee had disclosed in the
first instance in the original returns all the details to the department, the
discovery of note per se did not make any difference and that the addition
could not be made on the ground that it was seized in the search proceedings.
The ITAT further held that the appellate Commissioners reliance on ` 2
crores paid to M/s. Ansal Buildwell Ltd. overlooked that the assessee did not
receive the amount. The ITAT noticed that contrary to the facts found, the
AO had held that ` 2 crores was paid on 25.09.1995 by VIPL to M/s. Ansal
Buildwell Ltd. and therefore, the appellate Commissioners findings were
based on inaccurate facts. It further held that the Revenue cannot interpret a
written agreement between the third parties in its own manner. The Tribunal
placed strong reliance on the fact that the assessee had shown security
deposit for regular assessment in 1996-97 and that during the relevant time
the AO failed to discharge the burden that was upon the Revenue. The
reasoning of CIT(A) that VIPL had shown that the amount, i.e. security
deposit was stock in trade was also faulted. The ITAT questioned the
reasoning saying that even that amount became subject matter of arbitration
proceedings and that the liability was not an ascertained one. Furthermore, it
was held that VIPLs books were not under the control of the assessee and
that it was only the assessees books of account that were relevant. It was
also held that the culmination of arbitration proceedings was the point of
time when the assessee became entitled to appropriate the amounts it had
kept with it as security deposit.
ITA 599/2004 Page 10 of 30
7. Upon appeal, the ITAT upset the findings of the AO and the CIT (A),
holding that fresh material justifying addition in a block assessment was not
seized. The ITAT relied on some of its previous orders. It also held that the
note could not be relied on having regard to the fact that the agreement, as
well as the sum of ` 42 was disclosed during the course of regular
assessment proceedings and the assessee was entitled to treat the amount as a
deposit, in accordance with the express terms of the agreement.
8. The Revenue contends that a plain look at the agreement between the
parties dated 01.04.1995 clearly showed that the assessee had sold all rights
over the property and received ` 42 crores. The division of the said amount
a small part (` 2 crores which was payable to M/s. Ansal Buildwell Ltd.)
was a matter of detail and at the convenience of the assessee. The terms of
the agreement clearly showed that the intention of the parties was to convey
the property and all manner of rights and interests that the assessee
possessed, to VIPL. The consideration agreed and the method of payment,
i.e. ` 40 crores on specified dates or at specified intervals was also known.
Furthermore, though styled as security deposit and ostensibly placing the
burden on VIPL to carry on building activity and obtain for that purpose all
necessary sanctions and clearances, the assessee did not and could not
exercise any control over the manner of execution of the obligation, if any. It
was emphasized that the time given or agreed to by the parties for the
utilization of development rights and construction was 7 years. Further the
assessee had no control over the manner of discharge of information in
relation to such activities. It could not impose in any manner whatsoever its
views or decision nor could it deduct any penalty or monetary damages for
ITA 599/2004 Page 11 of 30
the performance of such so-called obligations. Plainly, the so-called security
deposit was nothing more than sale consideration but treated for the sake of
assessees convenience as a deposit.
9. It was submitted that in the course of the search and seizure
proceedings, the note shed a different light upon the nature of the transaction
which necessitated further enquiry. The notice and inferences that the AO
drew were based upon other corroborative matters such as the statement
made on behalf of the VIPL and furthermore on an examination of its books
of accounts which clearly showed that the amount was treated as part of the
stock in trade which meant that nearly or atleast all meaningful rights and
interests had passed to it. In these circumstances, the Revenue was entitled to
treat the inference that the note showed new light which entitled it to bring to
tax the amount of `42 crores.
10. Mr. M.S. Syali, learned senior counsel for the assessee urged that this
Court should not interfere with the final findings of fact rendered by the
ITAT which is the last forum or tribunal of fact. It is argued that the terms of
the agreement between the parties were interpreted by the Revenue
consistently in all the years, especially in the year the receipt had to be
returned. Urging that `2 crores was paid to another entity and not to the
appellant and that it was linked to handing over of possession, learned senior
counsel emphasized that consistent with the terms of the agreement, the
entire possession had not been handed over. The parties to the agreement
envisioned performance of certain obligations by the VIPL. It was to control
and check the performance of these obligations which led them to agree to
treat the amount as a security deposit and not as a consideration. Learned
ITA 599/2004 Page 12 of 30
counsel stressed upon the fact that the event of sale would be the point of
time when the assessee, on a future date, upon satisfaction, state that the
contract had been performed; at that point of time, the amount should be
justifiably appropriated and then treated as consideration received. Till then,
its treatment in the books of accounts and even in the balance-sheet is only a
deposit, was justified.
11. It was highlighted that the impugned order cannot be termed as
erroneous because the ITAT preferred to interpret the document (i.e. the
agreement) differently and say that the real nature of the amount received
was consideration, ignoring the plain terms of the document, which revealed
the intention of the parties unambiguously, to treat the amount as a security
deposit, to be appropriated on a future date. It was also emphasized that as a
matter of fact, the said appropriation itself became contentious and was
subject matter of a reference to arbitration.
12. The material terms of the agreement which are part of the record were
in fact reproduced by the AO, which read as follows:
This agreement is made at New Delhi on this 1st day of April,
1995 between:
M/s. Ansal Properties &Industries Ltd, 115 Ansal Bhawan, 16
KG Marg, New Delhi-110001, through Shri G R Gogia who has
been authorised by the Board of Directors vide resolution
passed in its meeting held on 21st May, 1993 hereinafter
referred to as the first party (which expression shall be deemed
to mean and include its successor-in-title/office, nominees and
assigns) of the First Part:
AND
ITA 599/2004 Page 13 of 30
M/s. Verka Investment Pvt. Ltd; A-1/71A, Panchsheel Enclave,
New Delhi through Shri Yatinder Singh, Director, who has been
authorised by the Board of Director vide resolution passed in
its meeting held on 31st March 1995 hereinafter referred to as
the Second Party (which expression shall be deemed to mean
and include its successor-in-title/office, nominees and assigns)
of the Second Part:
WHEREAS the First Party is holding development rights for
erecting a multi-storeyed commercial building as permissible
on the plot of land known as and bearing NO.27 K G Marg,
New Delhi (hereinafter referred to as the said plot) under
agreement dated 6th July 1977 (hereinafter referred to as the
said agreement) with Shri Anand Nath and Others (hereinafter
referred to as the Principal Owners);
AND WHEREAS under the terms of the said agreement the
First Party is entitled to sixty five percent (65%) and the
Principal Owners or their nominees/successors are entitled to
thirty five percent (35%) of the total builtup/saleable and other
areas including basements and parking spaces;
xxxxxxxxxxxxxxxxxx xxxxxxxxxxx
AND WHEREAS the Said Suit of specific performance was
decreed by the Delhi High Court in favour of the First Party on
17.09.1991 vide order dated 17th September, 1991 against
which an appeal was filed by the Present Owner which has
been pending since October, 1991 before the Hon'ble Delhi
High Court;
AND WHEREAS on account of prolonged litigation and
uncertainties of result, the First Party and the Present Owner
have arrived at an out of Court settlement (hereinafter referred
to as the Settlement) which is yet to be made a rule of the Court
of competent jurisdiction with each other by virtue of which the
First Party shall carry out construction and development on the
Said Plot and shall be entitled to forty percent (40%) of areas
in place of sixty five percent (65%), and the Present Owner
ITA 599/2004 Page 14 of 30
shall be entitled to sixty percent (60%) in place of thirty five
percent (35%) of areas subject to other terms of the Settlement
relating to sharing of various costs and other obligation of the
parties thereto;
xxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxx
NOW THIS AGREEMENT WITNESSETH AS UNDER
I. That the Second Party agrees to carry out development
and construction etc. upon the Said Plot bearing No. 27
Kasturba Gandhi Marg, New Delhi measuring approximately
1.185 acres of a multi storeyed commercial building as
permissible at the expenses, risks and liabilities proportionate
to its share and the share of the Present Owner and in terms of
the Settlement.
2. That the First Party also agrees to transfer, assign and
sell to the Second Party its entire forty percent (40%) share of
the total builtup/ saleable areas including basements and
parking spaces in the building to be erected upon the Said Plot.
Currently, FAR permissible on the Said Plot is One hundred
and fifty (150).
3. That the Second Party and the Present Owner shall be
responsible for obtaining necessary sanctions including the
passing of the building plans, obtaining of terms of conversion
from the L&DO and exemptions under the ULCR Act etc. and
all costs or outgoings for obtaining any sanction shall be met
by the Second Party and the Present Owner in proportion to
their respective share in the proposed building on the Said Plot.
4. That the first party is in possession of one room and a
verandah in the existing building on the said plot and these
shall be handed over to the second party on receipt of payment
under Clause 9 (iv). The possession of the balance of the Said
Plot and the structures thereon shall be obtained by the Second
ITA 599/2004 Page 15 of 30
' party from the Present Owner under the terms of the
Settlement.
5. That the development and construction work on the Said
Plot shall be completed by the Second Party within a maximum
period of seven years of the grant of necessary sanctions from
the competent authorities and obtaining the possession of the
remaining portion of the said plot from the present owner,
whichever takes place later.
6. That the Second Party, at the proportionate cost to be
borne between it and the Present Owner, shall be liable and
responsible for timely completion and development of the
project.
7. That the consideration amount payable by the Second
Party to the First Party for permitting development and
construction on the Said Plot as stipulated in Clause 1 above
and for transfer as per Clause 2 above of the First Party's forty
percent (40%) share of areas including basements, parking
spaces as may be sanctioned is fixed at rupees four hundred
twenty million onl (Rs.420,000,000,00) which shall become due
and payable as per clauses 10 infra. It is again clarified that the
Second Party shall be liable and responsible for construction
and completion of the project at the cost and expenses,
including any out-going, levies, charges of whatever name
known as may be claimed by the L&DO, the Authority under
the ULCR Act or any other Authorities or agencies in
connection with the grant of sanctions or otherwise to be
shared between the Second Party and the Present Owner in
proportion· to their respective share in the proposed building
and other open/covered spaces, basements, etc.
9. That the Second Party by way of security for due, proper and
timely performance of the obligations under this agreement
undertakes to make a deposit of rupees four hundred million
(Rs. 400,000,000.00) as follows:
xxxxxxxx xxxxxxxx xxxxxxxx
ITA 599/2004 Page 16 of 30
10. That the consideration as mentioned in clause 7 above
shall become due and payable from the Second Party to the
First Party only on construction and completion of the project
as per covenants hereto and on their obtaining from the Present
Owner & Certificate for satisfactory discharge of all the
liabilities and obligations undertaken by the First Party to
Present Owner under the Settlement Agreement and after the
areas falling to the share of the Present Owner are handed over
to them. Security deposit as indicated in clause NO.-9 above at
the discretion of the Second Party shall them be appropriated
by the First Party towards sale consideration of rupees four
hundred twenty million (Rs.420,000,000) due under this
agreement and the balance sale consideration shall be paid by
the Second Party to the First Party within a period of thirty (3)
business days thereof.
11. That in the event of breach of the Second Party under this
Agreement the Party of the First Part shall have only the right
to recover its consideration specified under Clause 7
mentioned hereof.
12. That the Second Party shall be responsible to hand over
to the Present Owner sixty percent (60%) of the total built-up
saleable areas including basement and parking spaces
allocated to the share of the Present Owner under the terms of
the Settlement.
xxxxxxxx xxxxxxxx xxxxxxxx
14. Timely payment of the sale consideration and the security
deposit as per clause 9 and 10 above forms the essence of the
terms of the contract."
13. The search and seizure proceedings took place on 10.02.2000; the
block assessments notice under Section 158BC was issued on 22.01.2001
and the return was filed on 13.03.2001 whereby the assessee stated that its
undisclosed income was NIL. The search proceedings had unearthed a
ITA 599/2004 Page 17 of 30
note,[termed confidential], it importantly stated that the terms of the
agreement indicated that the purpose for drawing it up was to defer income
tax liability and that after receiving 95.23% of the total consideration, it was
not refundable irrespective of completion of building, the amount was to be
taxable in the year it was received - "the total amount is taxable in the year
in which it was received". The note also stated that there was no condition
enabling VIPL to claim refund of any part of consideration and that it was
fully responsible for development and construction of the project. The note,
however, observed that the assessee had no liability whatsoever of carrying
out construction. It further stated that the AO had not gone into the details of
transaction as also the agreement and "otherwise the total amount can be
liable for income tax even in the assessment year 1995-96 and if it so
happens, the income tax liability including penalty and interest on this
amount would be much more than ` 42 crores, i.e. the total consideration
under this agreement". After noting these, it was further stated that the tax
department had provisioned, i.e. "provided ` 25 Cr. as fair and reasonable
tax liability while working out the net worth of APIL. This is being disputed.
It is being suggested that to defer the provision of this this liability and
whatever amount become payable ultimately should be shared equally by all
the three". This uncertainty of future from AHCL and ABL is too much of a
risk for APIL.......The provisons of ` 25 Cr. towards tax liability is absolute
minimum."
14. Post search investigation and during the course of proceedings, the
statements of directors of VIPL was recorded in the course of survey
proceedings under Section 133A. In the course of statement, it was
ITA 599/2004 Page 18 of 30
categorically admitted that sale consideration paid to the assessee was ` 42
crores. It was further stated that the assessee had no stake in the property as
all its rights were acquired, in the sale transaction by the VIPL through the
agreement of 01.04.1995. VIPL asserted that it became the owner of the
property and therefore, entitled to book and sell 40% of total built-
up/saleable area. That was conveyed.
15. This Court notices that the AO found that the assessee was in dire
need of funds to liquidate its borrowing as well as make important payments
towards the ongoing projects. The proposed arrangement was, therefore,
planned from tax point of view to defer tax liability that was otherwise to
accrue. It was noticed that the assessee had received ` 40 crores in 1995-96
and the balance was received by M/s. Ansal Buildwell Ltd. as interest free
inter corporate deposit to be paid to APIL at a later date. This Court notices
that the development and construction work in terms of the agreement was to
be completed in a 7 year period failing which the assessee was at liberty to
forfeit the amount. There was no term in the agreement which entitled the
assessee to exercise any manner of control over the performance of this
obligation spelt out in clause 7. Therefore, the inference drawn by the AO
and confirmed by the CIT(A) that the terms of the deposit as one for security
was merely a camouflage or devise to postpone tax liability that was plainly
staring in the assessees face. This was also demonstrated by the fact that
VIPL was under no circumstances entitled to claim refund of any part of the
agreement which inter alia aimed over all development rights and the
consequential rights to construct, let and collect consideration for the built-
up space. The assessee could not claim any share in that nor control method
ITA 599/2004 Page 19 of 30
or manner of execution. The device was created, i.e. of security deposit, to
enable the assessee to successfully convey and postpone its tax liability
which otherwise accrued in the order of execution in successive assessment
years but for the seizure of notes which let the cat out of the bag, as it were.
The Revenue would have continued to remain in the dark and eventually the
assessee would not have paid any tax towards the amount which were plainly
received as consideration. The note, in fact, admitted the correct position that
the tax liability had to be postponed for business reasons.
16. This court also notices that the AO found that M/s. Ansal Buildwell
Ltd. in its reply during the assessment proceeding stated that `2 crores was
received as earnest money against the present and future projects. The
assessees contention was that this was received by it as interest free inter
corporate deposit to be refunded and paid to APIL at later date. Given these
contradictory statements, the AO proceeded to lift the veil and discern the
true nature of the transaction and hold that even the `2 crores was nothing
but part of the overall consideration agreed upon by the parties. This Court is
of the opinion that this finding is in conformity with law. This was also
supported by the fact that VIPL showed the entire sum of ` 42 crores as
stock in trade thereby confirming the interpretation that the real intention
was that the entire sum was towards the consideration and not to be treated
as part security deposit and the other as something else. In fact the said
amount of ` 2 cores was specifically mentioned even in clause 10 of the
agreement.
17. The objective of empowering the Revenue to bring the tax amounts as
undisclosed income under Section 158 BA is based on the sole consideration
ITA 599/2004 Page 20 of 30
that if in the course of search under Section132, the material throwing new
light on otherwise concluded assessments are disclosed and seized, the
concluded assessment of the previous years can legitimately be reopened and
that inferences can be justly drawn on the basis of such materials or
otherwise of undisclosed income and the position of quantum of such
income would be the subject matter of block assessment. The courts have
consistently ruled that to enable the Revenue to make block assessments, the
search must be based on authentic materials and must be by a designated
officer having sufficient responsibility since a search and seizure implicates
adversely the privacy of the individual or a concern. Once concluded the
search proceedings have to culminate in a block assessment within a defined
period of time.
18. One of the most fundamental bases amongst the other important
considerations is that if new materials or documents come to light, the
assessees income can be revisited and additional amounts brought to tax.
Having regard to these objectives, and the mandate of Section 158B(b), the
sum of `42 lakhs brought to tax by the AO in the entire circumstances of the
case was reasonable given the materials seized, the survey conducted and
the statements recorded during the course of assessment proceedings. All
these clearly reveal that the security deposit was a mere camouflage or a
devise to postpone tax liability towards an uncertain date, at the convenience
of the assessee. Clearly, the amount received pursuant to the agreement and
the conveyances executed thereafter, showed that the intent of the parties
was to treat it as a final consideration payable and paid in presenti. For these
ITA 599/2004 Page 21 of 30
reasons, the first question is to be answered in favor of the Revenue and
against the assessee.
Re: Question No.2
19. The facts here were that during the course of search in the assessees
premises, a brown diary Annexure A-23 was seized from the office
premises of M/s. Ansal Buildwell Ltd. The assessment was that of one
Vinod Tiku, AVP (Technical) of M/s. Ansal Buildwell Ltd. It contained the
following note: "Jatia (Anil Bhalla 100 crores divided into 70-30- for
167, 112 acres)".
20. The AO deduced the figure 167.112 as 167.112 acres of land in
Village Tigra owned by M/s. Aadharshila Towers Pvt. Ltd (ATPL). This
company was managed and controlled by Sh. S.K. Jatia. The share capital of
the company was owned by the corporate entitles which held shares worth
`6,60,000/-. The assessee entered into an agreement on 31.01.1996 for
purchase of entire shareholdings of Aadharshila Towers Ltd. The total
consideration was ` 70.2 crores. The AO was of the opinion that ` 70 crores
for 167.112 acres mentioned in the seized diary referred to this payment.
According to the statement of Sh. Tiku recorded on 16.082.000 in which he
disclosed ` 100 crores represented the cost which included the cost of land
`70 crores and ` 30 crores was the appropriate cost of development. The cost
of development was towards external and internal development charges for
the entire 167.112 acres. The AO referred to enquiries made on sample basis
stating that besides cheque payments, part of the consideration was in cash.
The statement of M/s. Margdarshak Properties Ltd. that the total
consideration was `6.5 lakhs per acre whereas ` 1.5 lakhs per acre was
ITA 599/2004 Page 22 of 30
received as "on money". The AO, therefore, inferred that approximately
87% was paid in cash. Consequently, he brought to tax an amount of ` 30
crores holding it to be cash paid.
21. In the appeal, the assessee urged that the addition was made on
presumptive basis that the figure of cash "30" represented cash consideration
paid outside the books. It emphasized that Section 132AA used the
expression "may be presumed."This implied that the question of
presumption would depend on circumstances of each case. The assessee
complained that the expression "divided into" were read into the notings of
Vinod Tiku. As to the truth, the veracity of these statements could not be
verified. The AOs approach was contrary to the mandate of 132(4A)(2A) of
the Act. It is urged that even if the statements were accepted arguendo that
part of the consideration was paid in cash that itself did not warrant that the
conclusion that beside `70.2 crores an amount of ` 30 crores was paid. The
other contentions too were urged.
22. The CIT(A) noticed that the statement of Vinod Tiku was that ` 30
crores was an approximate figure of development split into two - external
development charges for the entire area at ` 60 crores and the external
development charges ` 14 crores. It was further observed that Vinod Tiku
corroborated this position in the subsequent questioning and also in an
affidavit. The CIT(A) particularly relied upon the answers to question nos.
16 and 17 and held that the totality of statements showed that the license in
favor of the assessee was issued in 1996 after it furnished the bank guarantee
and that this explanation of Vinod Tiku on 31.07.1998 could not be
appreciated as it is an afterthought. The CIT allowed the asses sees appeal
ITA 599/2004 Page 23 of 30
noting, therefore, that the AO alleged since that the figure "30 represented
cash payment" the onus of proving was upon him. Reliance on the
statement per se, therefore, could not overcome explanation of Vinod Tiku
with respect to the payment of Rs.. 30 cores towards overall development
charges.
23. The ITAT which rejected the Revenues appeal on this point held as
follows:
"Since the diary in question was not recovered from the
premises of the assessee, which is independent public limited
co., therefore, no presumption under section 132(4A) could be
drawn against the assessee. In the block assessment, the burden
is upon the AO to prove that the particular item is undisclosed
income. Admittedly, no other evidence is recovered during the
course of search to prove that in fact any payment of Rs.30
crores outside the books of accounts has been made by the
assessee to Sri S.K. Jatia. The AO has made addition in the
case of the assessee in respect of payment of Rs.30 crores made
to Sri S.K. Jatia. Even in the seized diary the narration is
"Adharshila Jatia [Anil Bhalla]". Neither Sri S.K. Jatia nor
Anil Bhalla were examined by the AO during the course of
assessment proceedings. Therefore, we fail to understand as to
how the addition could be sustained in the hands of the
assessee. It appears from the above circumstances that the
department has made subsequent enquiries against the assessee
in order to connect the assessee with the diary in question but
such things are not permitted as is held by Bombay Bench of
I.T.A.T. in the case of Sundar Agencies (supra). No addition
could be made in the block assessment on the basis of
assumption and presumptions. Merely some material is
recovered during the search, no addition could be made in the
hands of the assessee on the basis of some subsequent enquiries
and that too purely on assumption and presumptions. The AO
observed in the assessment order while making the addition
that he made enquiries from the villagers. This was the main
ITA 599/2004 Page 24 of 30
reason to make up the theory of the payment made outside the
books of accounts on the basis of inference drawn on estimate
basis. It is an admitted case that the villagers had a dealing
with M/s Aadharshila Towers Private Ltd. for selling of their
land. These transactions were not at all connected with the
assessee. The villagers have not made any incriminating
statement against the assessee.
The inference drawn by the AO that initially M/s A TPL was
owned by Sri S.K. Jatia and then subsequently was taken by the
assessee by itself is no ground to draw the presumption against
the assessee that since some dealing outside the books of
accounts had happened between the villagers and M/s ATPL,
there is no presumption that such transaction would have also
happened in between ATPL and the assessee."
24. The Revenue contests the findings of the ITAT and submits that the
presumption drawn in the circumstances of the case was upon analysis of
materials and that AOs view was justified. It was pointed out that
independent corroboration in regard to the seized diary was by way of
consideration paid for acquisition of shares in Aadharshila Towers for ` 70
crores. The diary clearly stated that the total cost was ` 100 crores. The
farmers who received the consideration were paid partly in cash. These
corroborative materials were insufficient in income tax proceedings, on an
application of principles of evidence to hold that `30 crores was the
undisclosed cash component of the consideration.
25. This Court is of the opinion both the CIT and ITAT have rendered
findings that were sound and reasonable on the question of whether the
seized diary per se could in the overall circumstances of the case result in the
addition of ` 30 crores. The assessees explanation consistently was that `30
crores was towards internal and external development charges. This was an
ITA 599/2004 Page 25 of 30
aspect which could be easily decided by securing relevant information from
the statutory authority, i.e. HUDCO who received the payments.
Independent corroboration of these too could have been sought otherwise the
relevant books of account could have been checked. Furthermore, the statute
does not compel the Revenue to raise a presumption; even when a tax
authority does so, the sole basis of an addition entirely hinging upon the
interpretation of certain figures in a diary would be flawed. For these
reasons, this Court is of the opinion that since the inference drawn with
respect to findings are based on essentially factual materials which were
analyzed by the CIT and the ITAT, there is no reason to interfere with those
findings. This question is accordingly answered against the Revenue and in
favor of the assessee.
Re: Question No.3
26. The addition made on this aspect was to the tune of ` 45,08,971 and a
further addition of `6,35,525/- on denoting unaccounted cash reflected in the
seized cash slips. The facts are that 7 slips reflecting amounts of ` 45.08
lakhs were seized from the wallet of Mr. Sushil Ansal. He explains that the
slips pertained to APILs cash. The statement of three employees of the
company were recorded by the AO; the assessee furnished detailed
explanation regarding the nature of transactions that were the subject matter
of the slips; the AO disbelieved the explanation holding that there was
nothing to establish a link between he assessees cash reflected in its books
with the cash slips. Therefore, he concluded that the amounts were received
by Sh. Sushil Ansal outside the books of accounts. He added back these
amounts. CIT(A) noted and analyzed the manual cash book which showed
ITA 599/2004 Page 26 of 30
on 25.01.2000 and 27.01.2000, cash balance amounts of `21,21,464 and
`24,71,462/- and on 27.01.2000, `24,53,525/- as cash in hand. This was
verified to be correct. The assessee tried to deposit `20 lakhs in the
companys account with Laxmi Vilas Bank Limited but could not since the
bank had limited/smaller chest which could not accommodate that quantity
of cash. Consequently, the amount was kept in the small locker and on
29.01.2000 taken and deposited with Canara Bank, Janpath. The amount was
subsequently transferred of Laxmi Vilas Bank Ltd. on 30.01.2000. This, the
CIT(A) noticed was reflected in the bank statements relating to the two
accounts. The CIT(A) on appeal, therefore, held that the materials on record
and the explanation given by the assessee with respect to the difference in
cash balances in respect of seized cash books and the computer statement on
the other hand were not in any way disturbed by the statements of the
employees recorded. It was, therefore, held that the assessee s explanation
that there were sufficient balances in the accounts of several imprest holders
and that such amounts which were reflected in the slips should be treated as
explained was, therefore, accepted. However, upon the tally of the total
amount, the sum of ` 45,08,971/- was reduced to `6,32,525/-.
27. The ITAT held that the assessee had explained the substantial sum of
`19,63,375/- and `20 lakhs which were reflected as cash in hand in terms of
companys cash book which was seized on 28.01.2000; the findings of the
AO, inasmuch as they proceeded to hold that there was no evidence to link
assessee with cash receipts, were set aside. The ITAT was of the opinion that
apart from the bare view that the AO took, that there was no other material to
substantiate the assumption that slips denoted amounts outside the cash book
ITA 599/2004 Page 27 of 30
in the documents which were the subject matter of assessment, it also found
that the CIT(A) had reconciled all figures in the matter and deleted the part
addition. The Revenues appeal was, therefore, dismissed. The ITAT
directed the AO to verify the correct figures and add the concerned amounts,
even while upholding the CIT(A)s decision.
28. This Court is of the opinion that this question pertains to pure finding
of fact which concerns inferences to be drawn on the basis of material found.
The CIT(A) and the ITAT felt that the amounts reflected in the seized slips
were fully explained in the relevant cash balances found in the books of
accounts and the bank statements of the assessee. Furthermore, the ITAT has
remitted the issue with respect to verification of the extent of addition after
having upheld the CIT(A)s order. Thus, the question only is whether the
sum to be added back is ` 6,35,525/- or something more. Given the intensely
factual nature of analysis, the Court is of the opinion that there is no
substantial error calling for interference. This question of law is, therefore,
answered in favor of the assessee and against the Revenue.
Re: Question No.4
29. During the course of search, the documents reflected in Annexure A-2
were seized from the residence of Sh. Gopal Ansal, i.e. 2 bills for ` 60 lakhs
and `32 lakhs raised by M/s. Televista Electronics Limited, Noida
("Televista" hereafter). The bills were for commission payable to facilitate
sale of building measuring 2.12 acres in Sushant Lok, Gurgaon. Televista
billed the assessee. The plot had been sold to M/s. Vatika Green Field
Limited [hereafter "Vatika"] on 19.12.1997. The assessee claimed that it
paid commission of `92 lakhs to Televista. The statement of Sh. Vipin
ITA 599/2004 Page 28 of 30
Luthra was recorded. The statement of Vatikas employee Anil Bhalla was
also recorded. Sh. Bhalla denied involvement of Televista in the deal. Sh.
Luthra further mentioned that he was involved in arranging the sale of the
plot. The AO took into consideration the fact that Sh. Vipin Luthra was the
son-in-law of Sh. Sushil Ansal, the Chairman and Managing Director of the
assessee and that the expenditure could not have been allowed under Section
40A(2). The CIT(A) however disagreed and set aside the AOs findings
noting that the consideration paid for sale of the plot was ` 23 crores and that
` 92 lakhs was the commission commensurate with the fair market value
service rendered by Televista. The CIT noted an affidavit of Sh. Bhalla dated
15.02.2002 where he mentioned about the role of Vipin Luthra and Televista
and also had added that he assumed that no commission was payable by the
assessee. After consideration of all these circumstances, in the Revenues
appeal, the ITAT further held that the amount could not be brought to tax as
it was claimed as commission payable in the original returns and it was so
claimed consistently by the assessee even in the block assessment.
30. This Court is of the opinion that the facts clearly indicate that ` 92
lakhs was claimed as commission payable to Televista and reflected duly in
the documents and books filed along with the returns. These was subjected
to normal assessment at the time when they were reported. The block
assessment did not bring out any fresh material except the invoices for the
AO to deduce any further undisclosed income. In these circumstances, the
addition made by the AO was, in the opinion of this Court, correctly set
aside by the lower appellate authorities. This question of law too is answered
against the Revenue and in favor of the assessee.
ITA 599/2004 Page 29 of 30
Re: Question No.5
31. This question of law, i.e. with respect unreasonableness and perversity
as a general one and pertains to the evidence of ITAT as a whole. The court
notices that barring the first question, on which the findings on the impugned
judgment are plainly erroneous, in law, there is sufficient factual basis for
the findings rendered in the other questions that were specifically framed as
questions of law. This question, therefore, is answered party in Revenues
favor as far as Question no.1 is concerned.
32. As regards of the impugned order, the court is of the opinion that there
is no perversity or unreasonableness in the other findings. In view of the
foregoing discussion and since the Revenue has succeeded as regards
Question of law No.1 and also having regard to the fact that Question no. 3
was partly remitted by the ITAT, this court holds that additions have to be
made in terms of the answers to Question No.1 and the remand, directed by
the ITAT (limited to Question No.3), is to be worked out. The appeal filed
by the Revenue is accordingly partly allowed. There shall be no order on
costs.
S. RAVINDRA BHAT
(JUDGE)
A.K. CHAWLA
(JUDGE)
SEPTEMBER 18, 2018
ITA 599/2004 Page 30 of 30
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