INCOME TAX ACT, 1961

Section 153A

Search and seizure - Assessment under section 153A - Receipt of on-money and treatment of unaccounted expenses -

A search and seizure action under section 132 was conducted at the residence of V, partner of the assessee-firm. Simultaneously, the business premises of the assessee-firm was also covered under section 133A of the Act. During the course of search and survey action, various loose papers, notebook, diaries, etc. were found and seized/impounded, which indicated acceptance of 'on money' on sale of flats constructed by assessee. Seized documents also revealed various payments/expenses made for the purpose of construction business. A statement on oath was recorded from V, partner of assessee firm under section 132(4) at the time of search proceedings by search party. In that sworn statement, partner of assessee firm had categorically stated that there was on-money receipts on sale of flats in the project carried out by the assessee and which were duly reflected in the seized documents found during the search. The said partner had also stated that in the very same seized documents, there were certain details of expenditures incurred by the assessee in the very same project carried out by assessee which were also kept outside the books of accounts. Accordingly, the said partner had pleaded before the Search authorities that the net profit emanating out of such unaccounted transactions shall be offered to tax by him in the return filed in response to proceedings pursuant to search and survey. It has been categorically stated by the assessee that on-money receipts on sale of flats was Rs. 9,75,50,000, out of which Rs. 6,01,09,970 totally spent by the assessee for the purpose of construction of the project belonging to the assessee firm which are not recorded in the books of accounts of the assessee. The details of these expenses were duly listed out in the seized document diaries and assessee sought deduction for the same. In this regard, the assessee also filed the entire details together with the narration and the nature of payment and the name of the party to whom such payments were made together with the complete break-up with dates for the total unaccounted expenditure of Rs. 6,01,09,970. Accordingly, the assessee offered for all the years put together unaccounted income after reducing unaccounted expenses from given receipts as on-money on sale of flats. Held: It is not in dispute that the details of unaccounted expenses in the sum of Rs. 6,01,09,970 were part of the very same seized documents vide seized documents referred in Annexure-A3 which also contained details of on-money receipts to the tune of Rs. 9,75,50,000 for all the assessment years put together. It is trite law that seized documents should be considered in toto and revenue cannot leave that part of seized documents which is detrimental to it and consider only that part of the seized document which is favourable to it while framing assessment. Hence, certainly deduction towards unaccounted expenses reflected in the very same seized documents was to be granted. However, considering the fact that all the unaccounted expenses could not be fully substantiated by assessee with proper supporting documents and also considering the fact that assessee's declared profit was 19% as per its regular books of accounts assessee would have made profit of 40% approximaterly on these unaccounted transactions by having the benefit in the form of huge cash discounts, huge savings in levy of indirect taxes, better negotiation of prices of materials due to cash purchases etc. Hence, AO was direct to add 40% of gross receipts as unaccounted income which has to be distributed to all assessment years in accordance with percentage of work competed by assessee.

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