Aishwarya Rai wins Tax Appeal
AIT News Network
MUMBAI. Though Customs has summoned her in case of illegal import of Foreign Currency in a Post Parcel lying in Foreign Post Office; Aishwarya Rai has proved to be a Superstar in Income Tax litigation by winning Tax Appeal in Tribunal and the addition of Rs.50 Lakh made by the department has been set aside vide a recent ruling AIT-2006-237-ITAT wherein it has been held that comparative purchase of  La-Mer Building Flat at Bandra by Sachin Tendulkar, cannot be made a basis for addition in the hands of the assessee.

T H E  F A C T S:

Aishwarya Rai along with her father, mother and brother by agreement dated 26-9-2000 purchased a flat on 12th Floor of the building La-Mer at Bandra (W), Mumbai from M/s. jay construction Company who were builders and developers of the building for a consideration of Rs.90 lakhs.  Search and seizure operations were carried out in the premises of the assessee on 26-9-2000, during the course of which, some loose papers were also found and seized, which pertain to this flat.  Statement of Mr.Krishnaraj Rai, (“KRR” ) father of the assessee, was recorded under Section 132(4) of the Act on 26-9-2000.  In reply to one of the questions, he stated that for the 12th Floor, Mistry Plaza, La-Mer, Bandra, Rs.50 lakhs was paid as additional amount in cash for the purchase of this property.  Thereafter, in post search inquiry before the Dy.DIT, the said KRR in statement recorded under Section 131 on 16-10-2000 stated that in respect of this flat in La Mer, Mistry Park, no additional payment was made in cash beyond the agreement value.  By a letter dated 29-11-2000, KRR explained that the statement under section 132(4) dated 26-9-2000 was taken at mid-night, at very odd time, and he was not in proper state of mind due to mental and physical fatigue, which resulted in inadvertent and wrong statement about the payment of on-money in respect of this property.  It appears that during the course of block assessment proceedings, JCC i.e. builder was called by the AO and was asked to furnish copies of sale deed made in respect of the assessee.  It was found by the AO that those sale deeds were executed on 23-5-1999 in favour of the assessee and her family members as under:“

         









The AO, further observed that 10th and 11th floor of the building, were purchased by Shri Sachin Tendulkar of the same area for Rs.153 lakhs each, which he adopted as a comparable case for cost of flat.  The AO based on his inquiries & loose paper etc. held that unaccounted cash amount of Rs.50 lakhs was paid for this flat, and since the assessee had major share in earning of the family, it was held that the entire on-money was paid out of her undisclosed sources, the amount was accordingly added to her block income on substantative basis and proportionately in the hands of other family members on protective basis.

          The Judicial Member held that subsequent retraction by the KRR was a correction of the statement and the same was valid.  The flat purchased by Shri Sachin Tendulkar was from third party and not from the builder, JCC, as against which, the assessee had made agreement with the said builder, JCC, as against which, the assessee had made agreement with the said builder directly much prior to purchase by Shri Sachin Tendulkar, therefore, no fruitful comparison could be made with the same. 

          The Accountant member, on the other hand, held that deciphering and interpretation of seized paper provide a strong corroboration of statement given by KRR under Section 132(4) accepting on-money payment of Rs.50lakhs.  The purchase instance of Shri Sachin Tendulkar was a good comparable instance, as all the three flats have identical floor area and applying the test of human probabilities and of surrounding circumstances, it was held that the addition of Rs.50 lakhs was rightly confirmed by the CIT(A)

On a difference of opinion between the Members, the following question was for opinion of Third Member.

“Whether on facts and circumstances of the case, the addition of Rs.50,00,000/- made by the AO and confirmed by the CIT(A) is to be sustained or not ?”

   T H E  R U L I N G:

The following four facets arise for the consideration.

i)       Evidentiary value of the statement made under Sections 132(4) and subsequent corrections/retraction in the statement under Section 131.

ii)      Interpretation of loose paper seized.

 
iii)     Inquires conducted at builders’ end and its effect on the aspect nos.(i) and (ii)           above and merits of the case.

iv)      Reliance on the comparable case cited by Revenue i.e. flats purchased by Shri Sachin Tendulkar to make the same as a basis for addition.

 Coming to the first issue, the initial statement dated 26-9-2000 ;the subsequent clarification given by him has to be accepted as proper explanation of earlier statement during the course of search. The plea about not filing of the affidavit is of no consequence as KRR has made statement under oath in Section 131,which has to be considered as a deposition on oath. Under these circumstances, addition cannot be retained only an the basis of earlier statement ignoring the subsequent clarification given before the conclusion of search inquires.

 Coming to loose paper , the same was written in coded manner. One interpretation of the revenue is that extreme right column of figure totaling “78” represents cheque payments and the middle column represents cash payments and cheque payments. The revenue could have bettered its case by inquiry from the builder concerned. Having not done so, things cannot be assumed in this behalf so as to upload the addition. In the given facts and circumstances, the revenue’s stand suffer from contradictions in the assessee though not fully verifiable, appears more reasonable. Non –disclosure of builders’ inquiry also affects the Revenue’s case adversely.  In the given facts and circumstances, the loose paper does not support case of the Revenue.

 Coming to the effect of builders’ inquiries, it appears that the Revenue conducted inquiries from builders, JCC, since the record has not been produced, it cannot be ascertained the level and depth of such inquiries.  The builders being a necessary party, the effect of such inquiries cannot be held as irrelevant.  The explanation of the assessee stands corroborated by the undisputed observations of the lower authorities in this behalf.

 Coming to the support derived from the comparable cases of Shri Sachin Tendulkar, the fact that the assessee agreed to purchase the flat in March, 1998 directly from the builder at booking stage, has not been denied.  Similarly, the fact regarding Shri Sachin Tendulkar having purchased flats and inquires in this respect were not confronted to the assessee at the assessment stage, so as to controvert the same.  Time gap of 15 months is significantly long, fact about direct booking of flats from builders and purchase from third party also has very important effect on the price of the flat.  Only explanation given by the lower authorities is that, there was a recessionary time and subsequent flats may have been sold at a lesser figure, is general and sweeping statement, which could not be used against the assessee.  There were other flat buyers, who could have also be examined, particularly, those who booked the flats from the builders at early stage.  This comparability at the most can create a suspicion which cannot be made a basis of addition.  In the given facts and circumstances, comparative purchase instance of Shri Sachin Tendulkar, cannot be made a basis for addition in the hands of the assessee. 

 ( Click here for full text of ruling AIT-2006-237-ITAT )