ORDER
G.E. Veerabhadrappa, A.M.
1. This appeal by the assessee arises out of the order dt. 22nd March, 2002 of the CIT(A)-IV, Bangalore, relating to block assessment involving the asst. yrs. 1989-90 to 1998-99 and up to the date of search.
2. The facts of the case are that search under Section 132 of the IT Act, 1961, (hereinafter referred to as “the Act”) was conducted at the premises in this group of cases including the assessee on 15th Nov., 1999. During the course of search, cash of Rs. 84,000 was found in the assessee’s premises. The assessee was asked to explain the same. The assessee offered some explanation by his letter dt. 2nd Dec., 1999, wherein it was stated that Divyesh R. Shah and Manish R. Shah have received gifts to the extent of Rs. 28,150 and Rs. 41,000 and the cash so received was available at the time of search, However, the AO did not accept the assessee’s explanation and went on to make addition of Rs. 84,000. He justified the addition on the ground that considering the status and style of living of assessee, there was inadequacy of drawings. This was one of the items of additions. The AO found that in the asst. yr. 1996-97, the assessee entered into certain land transactions of Arsinakunte village and in 1997-98, he entered into certain land transactions of Vishweshwarapura village. He came to the conclusion that there was on money payment in purchase of these lands. He accordingly added a sum of Rs. 23,20,000 and Rs. 15,80,000 in respect of these two transactions as undisclosed income for the block period. The main ground on which the additions made by the Department is that the sellers of land have admitted receipt of money in the transactions and various statements recorded from vendors were taken as basis for sustaining the addition. These additions are in dispute before us,
3. The learned counsel for assessee pointed out that additions are made without any basis or material and are the result of suspicion and surmises. The learned counsel for assessee pointed out that the cash of Rs. 50,000 that was seized belonged to Manish. The cash held by Divyesh to the extent of Rs. 32,478 was also not seized. This was found in the bedroom of Manish and Divyesh. Manish and Divyesh were also assessed to tax and as per the balance sheet as on 31st March, 1999, the cash available was Rs. 40,478 and Rs. 35,492 in the hands of these assessees. The explanation filed by the assessee is reasonable and, therefore, should have been accepted by the Department. As regards inadequacy of drawings, learned counsel for assessee pointed out that absolutely no material came to surface as a result of search to suggest that the drawings shown by the assessee are inadequate. In any case, addition cannot be made simply on the basis of estimation of personal drawings. The Department has found no material to show that there was a specific drawing, which was not recorded in the books of account.
The learned Departmental Representative, on the other hand, strongly relied upon the discussions in the order of assessment as well as the order of the CIT(A). According to him, the returns showing gifts by the two children were filed after the date of search and much credence should not be given to the explanation filed by the assessee in respect of the cash found. The cash found, therefore, should be treated as not having been explained by the assessee.
4. We have carefully gone through the records and considered the rival contentions. When the search was conducted on 15th Nov., 1999, at the residence of the assessee, cash was found. At that time, the assessee was not present. The Dy. Director of Income-tax (Inv.) was told by the assessee’s sons Divyesh and Manish, who are income-tax assessees, that cash to the extent of Rs. 51,522 belonged to Manish and Rs. 32,478 belonged to Divyesh, The search party directed them tp file letter. Accordingly, letter was filed. The claim of the two children of the assessee during the course of search that the cash belonged to them is duly supported by the balance sheet, which is at pp. 75, 76 and 77 of the paper book filed by the assessee. Having regard to the book balance, the letter filed by the assessee on 2nd Dec., 1999, which is at pp. 73 and 74 of the paper book clearly explains the sources of cash found at the time of search. The entire cash found has been properly explained by this letter. In the light of this letter, we are of the opinion that the addition cannot be made or sustained in the hands of the assessee as undisclosed income. The addition is deleted.
5. The AO and the CIT(A) appear to have supported this addition on the alternative ground of inadequacy of drawing. For making addition under the Chapter XIV-B as part of undisclosed income, it is necessary for the Department to have found some material to show that there was undisclosed income in the form of a specific drawing, which was not recorded in the books of account of the assessee. The Department has not found any material to show that there was a drawing, which was not recorded by the assessee in his regular books of account. In the absence of the same, we cannot sustain the addition. The addition under Chapter XIV-B cannot be simply made on the basis of certain estimates and probabilities. The addition is, therefore, deleted even on the alternative ground for lack of evidence in the matter.
6. The next dispute relates to addition in respect of on-money payment in the transaction relating to purchase of land. The assessee, along with his brother-in-law Kirthi Kumar Maru of Gujarat, has purchased land from Smt. T.N. Jayamma of Arsinakunte village. The declared consideration of Rs. 13,50,000 has come in the form of DD from Gujarat. The AO recorded statements from seller Smt. Jayamma and her husband Shri Nanjappa on 27th Dec., 1999 and 20th Jan., 2001, which confirmed the total consideration in respect of sale of two acres and 33 guntas of land at Rs. 36,70,000 as against the registered sale price of Rs. 13,50,000 and the remaining amount of Rs. 23,20,000 was given to them in cash by the assessee. On the strength of these statements, Department made the addition of Rs. 23,20,000.
7. The learned counsel for assessee vehemently argued that the addition is not supported by any seized material either with the assessee during the course of search or found with any of the vendors. There is absolutely no direct evidence to establish that in the said land deal between the vendor Smt. Jayamma and the assessee along with Kirthi Kumar Maru, there was an on-money payment. The entire assessment, according to the learned counsel for assessee, is based on conjectures and surmises, hypothesis and on the basis of whims and fancies of the AO. The learned counsel for assessee submitted that the assessment under Chapter XIV-B prohibits such assumptions and presumptions in arriving at the undisclosed income. The learned counsel for assessee further pointed out that Smt. Jayamma, who was the actual seller, was not at all examined. The only statement that was obtained by the AO was from Shri Nanjappa. Even here, according to the learned counsel for assessee, Shri Nanjappa did not affirm and admit on-money receipt when he was so examined on 27th Dec., 1999 and 28th Dec., 1999. Very strangely, after a gap of 22 days, it appears, Shri Nanjappa appeared before the DDI and admitted alleged on-money receipt of Rs. 23,20,000. According to the learned counsel for assessee, the said admission was recorded under enormous pressure and inducement that his various business activities and concealed bank accounts would not be investigated by the Dy. Director of Income-tax, Shri Nanjappa, acting on inducement, had obliged the Department to nail the allegation of receipt of on-money. The learned counsel for assessee pointed out that Shri Nanjappa did not sell any land to the assessee and Kirthi Kumar Maru. It was only Smt. Jayamma who sold the land although the cross-examination of Nanjappa was done. The assessee showed several sale instances which were ranging from Rs. 1.95 to Rs. 3.95 lakhs per acre. Shri Nanjappa did not contradict these transactions and, therefore, registered price of Rs. 6 lakhs per acre is reasonable and should be believed in place of the alleged market rate of Rs. 13,50,000 per acre. The learned counsel for assessee further pointed out that the Department failed to appreciate that the entire transaction of purchase of land at Arsinakunte village was made on behalf of brother-in-law of the assessee viz., Kirthi Kumar Maru, who was residing at Gujarat and, in fact, special power of attorney was executed by the said Kirthi Kumar Maru on 6th March, 1996 in favour of the assessee for negotiating purchase of these lands and the assessee has only been shown as a joint owner for completing the formalities. The assessee has not invested anything in the land and was borne by Kirthi Kumar Maru, which is clear from the DD obtained by Kirthi Kumar Maru from Rajkot in favour of the vendor. It was pointed out that even Kirthi Kumar Maru was also subject to search and astonishingly no material was found indicating the on-money payments in the transaction. It is not the case of the Department that they found some material to shows that on-money has been paid in the transaction. He relied upon the affidavit filed before the DDI on 6th Sept., 2001, which clearly shows that the name of the assessee was implicated for the sake of convenience and assessee did not contribute even a single rupee for the purpose of completing the transaction. The entire consideration and the stamp duty was borne by the said Kirthi Kumar Maru and it is also duly reflected in the books of account maintained by Kirthi Kumar Maru. In the light of these documents, if for argument sake one were to accept that there is on-money payment in the transaction, explanation should flow from the buyer Kirthi Kumar Maru. The Department has no material whatsoever found during the course of search indicating on-money payment. It is simply based on certain convenient statement recorded from the relative of the vendor and not even from the vendor. He relied upon pp. 78 to 85 of the paper book in support of these contentions.
The learned Departmental Representative, on the other hand, pointed out that the addition is based upon statement of receipt on on-money accepted by the vendors and the assessee is one of the persons shown as a buyer in the sale deed executed. The sum of Rs. 23.20 lakhs is admittedly paid as on-money in the transaction by Ramesh K. Shah as borne out from the statement recorded and executed. It is astonishing that the said sum of Rs. 23.20 lakhs has come back to the children of family members of Ramesh K. Shah as gift, which conclusively prove that the assessee was involved in the on money payments. The Department has correctly assessed the said payment as a part of undisclosed income earned by the assessee. The learned Departmental Representative pointed out that the addition is based on seized material and, therefore, needs to be upheld.
8. We have carefully considered the rival submissions and gone through the record. In our view, there is no basis for making this addition in the hands of the assessee. The Department has not found any material to show that there has been on-money payment in the said transaction of purchase of land, which was done jointly with his brother-in-law Kirthi Kumar Maru. In fact, the documents found during the search show that Ramesh K. Shah, the assessee, was only having a special power of attorney to facilitate registration of the property in question. The record further shows that it was Kirthi Kumar Maru who was the real buyer in the transaction has paid the money involved in the transaction through account-payee DD obtained from Gujarat and sent the same.
9. It may be pointed out that Smt. Jayamma who was the real seller was not at all examined. The only statement that was obtained by the Department in support of the addition could be said to be one from Shri Nanjappa husband of Smt. Jayamma. In fact, Shri Nanjappa, the record shows, did not admit on-money receipt when he was first examined on 27th Dec., 1999 and 28th Dec., 1999. The Department has obtained the so-called admission nearly after a gap of 22 days, Although the assessee alleges that Shri Nanjappa, acting on inducement from the Department had obliged the Department by giving the statement of admission. The record of comparable cases brought out by the assessee shows that there were sale instances ranging from 1.95 lakhs to 3.95 lakhs and there is no material evidence in support of the AO’s view that the price in the market was Rs. 13 lakhs per acre. The so-called admission by Shri Nanjappa may be due to the fact that he himself was not maintaining regular books of account in respect of his business and the Department could have easily cornered him in the circumstances in which he was placed in the matter of his own assessment. There may be some truth in what the assessee contends that statement from Shri Nanjappa was obtained by the Department just to nail the assessee and having regard to the fact that there was no direct or indirect material to suggest that on-money transactions, we are unable to reach opinion that statement of Nanjappa is all that credible and moreover he was not the seller and the seller was not examined by the Department. 10. Now, coming to the discussion by the AO that the family members of the assessee received identical gifts of Rs. 23,50,000 which, according to the AO, amply and conclusively evidences that on-money of Rs. 23,20,000 has been paid by Ramesh K. Shah out of sources best known to him. The learned counsel for assessee has furnished’us details of gifts received by the family members from Shri Kirthi Kumar Maru. These gifts were received to the extent of Rs, 22,50,000 and these gifts have come in the asst. yrs. 1994-95, 1995-96, 1998-99, 1999-2000 and 2000-01. The transaction, which has prompted the so-called on-money payments itself took place in February, 1996 and in absence of any valid material, we are unable to say that mere receipt of gift by the family members from a relative warrants the presumption that there is a certain on-money payment by Ramesh K. Shah,
11. Having regard to the totality of the facts that the real buyer of the land was Shri Kirthi Kumar Mam of Gujarat it cannot be said that the assessee had made payment of on-money to complete the transaction. So, the addition is deleted for want of material to support.
12. The next addition, which is disputed in this appeal relates to a sum of Rs. 15,80,000, which according to the Department, represents the on-money paid to three different groups of vendors for purchase of land at Vishweshwarapura village. The first group of vendors is Marine Hanumanthaiah. The Department reached a conclusion based on the statement recorded from the vendors that there is on-money receipt to the extent of Rs. 4.29 lakhs. The Department further strengthened addition based on the finding that on-money received was also deposited in the respective bank accounts. The other group is Bylappa, Srinivasaiah and Smt. Siddamma Galigappa. The Department reached the conclusion based on the seized material A/RKS/2 seized from the residence of Ramesh K. Shah. The learned counsel for assessee disputing these additions as part of undisclosed income, pointed out certain inaccuracies in the computation. The AO quantified the alleged en-money in three instances at Rs. 4.29 lakhs + Rs. 5.72 lakhs + Rs. 5.79 lakhs totalling Rs. 15.8 lakhs whereas in the body of the order, the said on-money payments are quantified at Rs. 4.29 lakhs + Rs, 2.17 lakhs and Rs. 5.71 lakhs which totals to Rs. 12.17 lakhs. Reading the part of the order of the CIT(A) and the AO it was pointed out that both the AO and the CIT(A) are totally confused and have gone on a misguided approach in arriving at the quantum of on-money payments. The learned counsel for assessee pointed out that no material whatsoever was found in the course of search to show on-money receipts. He drew our attention to the seized material, which the AO has referred to, and pointed out that neither the buyer’s name nor the seller’s name tally. Apparently, the seized material does not suggest payment of on-money by the assessee to the extent quantified by the AO. The learned counsel for assessee further pointed out that the seized document A/RKS/2, pp. 32 and 33 are not in the handwriting of the assessee and it does not contain either name of the assessee or any one of the vendors of the three groups. The learned counsel for assessee pointed out that although the statements are recorded from Manne Hanumanaiah, Srinivasaiah and Bylappa, the assessee sought to cross-examine them and the Department did not do so. The learned counsel for assessee pointed out that the assessee has filed various affidavits from the persons whose names are mentioned in so-called seized material to show that those people did not own any land, the question of on-money is simply an imagination of the Department. The learned counsel for assessee read from the statement of the facts to show that there were apparent contradictions in the statements recorded from these parties and did not bring out the truth in the transaction. If the money has been found deposited in the vendors’ account, it is not for the assessee to explain the sources. The assessee has no control over the deposits in the accounts of the vendors. The estimation of on-money, and the entire approach of the Department in the estimation is sketchy and violates the principles of natural justice, the addition is simply made on mere presumptions and conjectures and without any corroborative evidence either in the possession of the assessee or seized by the Department at the time of search.
The learned Departmental Representative strongly supported the impugned addition on the basis of discussions in the order of assessment as well as the order of the CIT(A) and the voluminous material seized during the course of search.
13. We have carefully considered the rival submissions and gone through the records. There is absolutely no evidence to show that there was on-money payments in the transactions, which are discussed by the AO or the CIT(A). No material whatsoever was found during the course of search to indicate that there was on-money payment in the transaction and the seized material referred by the AO does not, in any way, implicate the assessee nor shows that there is on-money payment in the transaction in question. Neither the assessee has been shown as buyer nor seller nor even seller’s name is indicated therein. They are only the particulars of land although names of the purchasers and sellers are recorded therein. They do not, in any way, implicate the assessee to prove that there was on-money payment made by the assessee in the said transaction of land. The statements recorded by the Department were behind the back of the assessee. The assessee is not given any opportunity to cross-examine the so-called vendors who admitted receipt of on-money. There is no material to show that the excess deposits in the accounts of the vendors came out of undisclosed income of the assessee. The AO has simply linked up such deposits to have come out of on-money payments by Ramesh K. Shah without any acceptable material in this regard.
14. In our view, the whole addition is based on sketchy imagination of the AO not supported by any evidence brought on record. We are unable to support the addition made by the AO. The same is deleted.
15. In the result, the appeal is allowed.