The assessee is a partnership firm and is carrying on the business as builder and developer. It carries on its business activities in Mumbai and Jaipur. The partners are D and P. The revenue carried out search and seizure operations in the hands of GHP Group of cases. A survey operation was also conducted at the business premises of the assessee at Jaipur and certain documents were impounded and statements were taken during the course of search/survey operations.

A) From the documents impounded, one Memorandum of Understanding (MOU) entered between the assessee and M/s ATC was found. As per the MOU, M/s ATC would develop the agricultural land owned by the assessee at Village Rajawas. The project consisted of development of a mini Township with housing plots and construction of Villas. In pursuance of the MOU, M/s ATC paid Rs.3.00 crores to the assessee in installments during the financial year 2005-06 and assessee received a sum of Rs.2.00 crores by way of cheque and the balance amount of Rs.1.00 crore was received by way of cash. The amount received by way of cheque was accounted for in the books and the amount received by way of cash was not accounted for. Both the partners of the assessee firm agreed to offer a sum of Rs.50.00 lakhs each in their respective hands. Such offer was also made in the revised computation of statement filed in their personal assessments. However, the AO took the view that the assessee was entitled to the amount of Rs.1.00 crore, since it was received by it as per the terms of MOU. Accordingly, the AO assessed the sum of Rs.1.00 crores as unaccounted receipt in the hands of the assessee. In the hands of both the partners, the amount of Rs.50.00 lakhs offered by each of them was assessed on protective basis.

In appeal, CIT(A) held that there was no real commercial justification in receiving advance of Rs.1.00 crores by way of cash and in not accounting the same in the books of account. CIT(A) held that assessee never intended to repay the advance and only a facade was being created through the MOU to give the impugned receipts a colour of being an advance. CIT(A) held that partners of the firm agreed to offer Rs.1.00 crore as income in their hands would show that the impugned advance was not refundable. Since the advance of Rs.1.00 crore was paid in pursuance of MOU entered with the assessee, CIT(A) held that the same was assessable in the hands of the assessee on substantive basis. Hence, CIT(A) enhanced the addition to Rs.3.00 crores.

B) From the impounded documents, AO noticed that the assessee has prepared a chart showing the details like name of purchasers, Plot No., Plot size, 50% amount, the amount received and the amount due. The column with the heading "50%" was presumed by the assessing officer to be representing 50% of the sale value of plot. AO presumed that full value of sale consideration was double the amount. The said amount divided by the plot area gave the rate per Sq. yard. Similar was the position in respect of one more party. The AO also noticed from the noting made in page 114 of Annexure 22 that the amount of 3200 was mentioned therein with further split up of 70% - 2240 and 30% 960. Further page 107 contained a letter written by one of the buyer named N, which mentioned that he had booked two plots at the rate of Rs.3200/- per sq. yard. Accordingly, the AO came to the conclusion that the assessee has sold the plots @ Rs.3,200/- per Sq. yard and further it has received 30% of the sale consideration by way of cash and the same was not accounted. AO concluded that the attending circumstances showed that the assessee had not accounted for 30% of the sale consideration and thus made addition on account of unaccounted cash receipts.

In appeal, CIT(A) upheld the view taken by the assessing officer and accordingly confirmed the addition.

Assessee submitted that the AO had only presumed that the heading "50%" represents 50% of the sale consideration. It was submitted that the assessing officer did not conduct any enquiry in this regard with any of the prospective buyers of the plot to substantiate his conclusions. It was submitted that the said document was not in the hand writing of the partners/employees of the assessee and further it does not contain signature of anybody, hence, AO was not justified in placing reliance on the document. It was submitted that the mere receipt of advance would not give rise to any income element.

Having heard the parties, the Tribunal held that,

A) ++ Since the assessee did not account for the above said amount of Rs.1.00 crore in its books of account, they have taken the view that the same constitues unaccounted receipt, meaning thereby, the tax authorities are placing reliance on the MOU for assessing the above said amount of Rs.1.00 crore. Further, the fact that the assessee has received advance amount of Rs.3.00 crores was also accepted on the basis of MOU. However, in order to assess the balance amount of Rs.2.00 crores also, it appears that the CIT(A) has expressed doubt about the genuineness of the MOU, since the assessee had contended on the basis of MOU that it has only received refundable advance. It is well settled proposition that the books of accounts or documents have to be relied upon in toto and placing partial reliance is not permitted under the eyes of law. Accordingly, we are of the view that the CIT(A) was not justified in holding that the MOU was only a facade and non-genuine;

++ the assessee has received the impugned amount of Rs.3.00 crores as advance from M/s ATC in pursuance of MOU entered between the assessee and M/s ATC. The fact that the assessee has received the above said amount of Rs.3.00 crores is not doubted with. We have also seen that the above said advance is described as "refundable advance" in the MOU and the terms of repayment of advance are also provided therein. The tax authorities have not brought anything on record to show that the above said amount is not refundable at all. As stated earlier, they have not giving any finding with regard to the purpose for which the above said amount was paid by M/s ATC. Hence, in our view, it may not be proper to take a view that the impugned advance is not refundable at all. Once it is accepted that the assessee is liable to refund Rs.3.00 crores, the next question that arises is whether the same is exigible to tax or not. We notice that it was not the case of the tax authorities that the same is assessable to tax as unexplained cash credit in terms of sec. 68 of the Act, since there is no whisper about the same and further they have accepted that genuineness of receipt of Rs.3.00 crores from M/s ATC. Hence the 'refundable advance' of Rs.3.00 crores received by the assessee constitutes capital receipt in the hands of the assessee, which is not liable to tax under any of the provisions of the Act. Further, a perusal of the MOU would show that it was a case of Joint development of land belonging to the assessee and there is no evidence to show that the assessee has parted with the land in favour of M/s ATC. Hence, the question of Capital gains also, in our view, would not arise;

++ even though the AO has assessed the amount of Rs.1.00 crore has unaccounted receipt, he has failed to refer to any of the provisions of the Act under which the same is assessable or to show any authority for his decision. In our view non accounting of capital receipt, which is otherwise not taxable in pursuance of the provisions of the Act, may not have any immediate implication so far as taxation is concerned. Even otherwise, the assessee is liable to refund the advance amount in terms of MOU. Accordingly, we are unable to sustain the view taken by the tax authorities in respect of the addition pertaining to Rs.1.00 crore. The addition of balance amount of Rs.2.00 crores is also liable to be deleted, since we have he that the MOU was genuine one and further the same is also a refundable advance. Accordingly, we set aside the order of CIT(A) on this issue and direct the AO to delete the addition of Rs.3.00 crores pertaining to the advance amount received from M/s ATC;

B) ++ assessing officer has drawn certain inferences on the chart found during the course of survey. The AO did not make any attempt to conduct enquiries with any of the prospective buyers to ascertain the true position. On the basis of said inferences and by taking two instances, the AO has concluded that the assessee was selling plots @ Rs.3,200/- per Sq. yard. Before us, the assessee has shown that the computation made by the AO, if followed in some other cases, would give the selling rate of Rs.3,950/- and Rs.4000/- per Sq. yard. With regard to the ratio of 70% and 30%, we examined the relevant sheet attached as "Annexure C" to the assessment order. Though there is a reference to the ratio of 70:30 with the corresponding amount of Rs.2,240/- and Rs.960/-, yet other noting made therein does not fit in that ratio. With regard to the letter written by one of the prospective buyers, the assessee has explained that the said person had booked the plot through an agent. It is quiet common that the agent would book the plots at a higher rate to make his own profit. We notice that the AO did not take any step to disprove the said explanation. However, the submission of the A.R was that they were advances received on booking of plots and 80% of the bookings got cancelled and the assessee was constrained to refund the advance amount. We further notice that the AO did not conduct enquiries with any of the prospective buyers to substantiate his views. In view of the foregoing, we are of the view that the assessing officer has reached conclusions about the selling rate of plots only on surmises and conjectures without bringing any credible evidence on record. Hence, in our view, there is no case to presume that the assessee had received a portion of advance in cash without accounting the same in its books of account;

++ mere receipt of advance would not give rise to any income element. From the explanations furnished before the AO, we notice that the assessee had proposed to execute sale agreements only in the subsequent years after the receipt of necessary approvals, meaning thereby the assessee has received only advances during the year under consideration, which are liable to refunded. According to A.R, the assessee has refunded about 80% of bookings in the subsequent year;

++ assessing officer was not justified in presuming that the assessee had received 30% of sale consideration as advance in the form of cash without accounting for the same. Further, the AO was not justified in presuming that the said advance would constituteincome in the hands of the assessee, in view of the fact that the assessee did not sell any plot during the year under consideration. Accordingly, we are of the view that the CIT(A) was not justified in confirming this addition. Accordingly, we set aside the order of CIT(A) on this issue also and direct the AO to delete the said addition.

(See 2014-TIOL-882-ITAT-MUM)