I.C. Sudhir, J.M. - (1.) THE assessee, M/s. Madhuvana House Building Corporative Society, Mysore, has impugned the block assessment order dated 31-10-1997, mainly on the following grounds: (i) THE assessment order is barred by limitation as it transgresses the provisions of section 158BE of the Income Tax Act, 1961, and required to be annulled : (ii) THE appellant is a housing building co-operative society and its income is exempt from taxation and whatever income that has been computed as undisclosed income is its regular income and not undisclosed income and such income is also exempt from block assessment; (iii) No income arose to the assessee from its activity of forming layout and allotting sites to its members as all the projects have not been completed and the amounts paid have been debited to the contractors' account and in view of the accepted method of recognition, income of completion contract method, no income arose to the appellant liable to tax as income in regular assessment much more as undisclosed income in the block inasmuch as the existence of the appellant was known to the department as the appellant has been assessed to tax before the date of search and its activities are also known to the department before the date of search and, therefore, the income from such activities could not be considered as undisclosed income.; (iv) THE disallowance of certain items which are debited to the contractors' accounts and shown in the balance sheet treated as undisclosed income; and (v) THE computation of undisclosed income from out of the seized materials.
(2.) Brief facts of the case are as under : The assessee is a co-operative society formed with a view to acquire lands by purchase or otherwise, form residential layouts and allot sites therein to its members with different contractors as under : judgement_7492_tlit0_20010.htm With reference to projects at Serial Nos. 2, 4 and 5 above, it was submitted that the contractors have only obtained advances from the society and they have not done any work at all and claimed that they have done the works and refused to return the advances. In respect of M/s. Reghvendra Constructions, the said contractor had even taken a stand (sic) simply signed blank vouchers and did not receive the money at all. These amounts paid to the contractors have not been claimed as items of expenditure at all and are shown as advances to be recoverable from them in the balance sheet. No tangible project work of taking possession of the land and commencing the civil work have been done with reference to the projects undertaken by the contractors at Serial Nos. 2 to 5 as yet. In fact, suits have been filed for recovery of the amounts taken by M/s. Reghvendra Constructions, M/s. Sky-top Builders and M/s. Divine Constructions, which are pending. Insofar as project No. 1 i.e., Shri Rampura Layout is concerned, it was submitted that it was entrusted to one firm called M/s. S.G.R. Enterprises on turn basis and the payments have been made to them from time to time as advances and the amounts paid to them directly are on their account and on their behalf as on 31-3-1996, are as under : judgement_7492_tlit0_20011.htm In the Shree Rampura layout project although Mysore Urban Development Authority (hereinafter referred to as the 'MUDA') gave possession certificate to the allottees, the project is not complete on the date of search and even has yet MUDA has also not given the completion certificate of the project on this count. There are in total 756 sites allotted to the various members. In this project only a part of the electrification has been done. The underground drainage is not yet completed, road topping (asphalting) has not been done, other civic amenities like development of parks, etc. have not been done. Out of 756 allottees about 70 allottees have constructed houses and are living without these facilities. Therefore, it was submitted that the members formed association called M/s. Madhubana Badavane Keshma Abhivrudi Sangha and have been agitating for completing the project early and in their anger and frustration they went to making wild and reckless allegations against the management and Shri D.T.S. Rao alleging that they have swindled the funds of the society with the contractor, M/s. S.G.R. Enterprises. It was submitted that the society way back in the year 1985 entrusted the formation of the layout to one firm called M/s. S.G.R. Enterprises on turnkey basis which is one among the pioneers and leaders in this field. It was stated that for diverse reasons the project could not be completed by them as the sheet anchor of the firm by the name Shri Ramchandra passed away and his wife, Smt. V. Rukmani, who became the managing partner, was suffering from shock on account of death of her son and husband and also because of injuries she suffered in an accident. It was further stated that the other trustee partners of late Ramchandra have also tried to grab the work from the society and when they did not succeed they joined the agitating site-holders to intensify the agitation against the management and tried to malign the management so that they could come to power and cancel the agreement with S.G.R. Enterprises and make profit for themselves. Smt. Rukmani who succeeded as the managing partner, claimed that she did not receive any assistance financially or otherwise from the other partners who had the control on the funds of the firm at the time of death of her husband. Therefore, M/s. S.G.R. Enterprises could not carry out the project works in the absence of release of funds as advances to them and also because of the ever growing and periodical demands for escalation in the cost of executing the civil works via-a-vis the contractual cost in the year 1985 was not accepted to their satisfaction. It was further submitted that they had also a grievance that the escalation given was inadequate and they should be compensated with higher rates and they have suffered the loss. It was further submitted that while it was true to some extent that the society wanted to grant them escalated rates finally provided the incomplete works were executed by them by putting their money first, the society itself was getting the work done on their account and debiting the expenditure to its account, since the contract had not been terminated at the time of search. The society finally terminated the contract and filed a civil suit for the recovery of damages for the breach of the agreement so that it could carry on the business without being shackled by the contract entered into earlier. It was submitted that since the project was not completed and civil works had to be carried out and since M/s. S.G.R. Enterprises which had taken advances had not given the final bill, no income or loss arose to the society during the previous years 31-3-1994, 31-3-1995 and 31-3-1996, although MUDA registered sites in the allottee's names. The amounts given to M/s. S.G.R. Enterprise are debited to their accounts and are not even claimed as an item of expenditure. The amount paid by the members of the society towards the sites is not taken as income in the accounts and that, therefore, no profit arose for the years ended on 31-3-1994, 31-3-1995, and 31-3-1996, being the three previous years forming part of the block period in view of the search on 6-2-1996.
(3.) INSOFAR as the project at Satgalli layout is concerned, it was submitted that the amounts were being paid to one contractor, Shri Ramchandra Char, and these were debited to the accounts and shown in the balance sheet. INSOFAR as M/s. Raghvendra Constructions, M/s. Sky Top Builders and M/s. Divine Constructions are concerned, the amounts incurred on these projects were debited to, the contractors' accounts and they were not claimed as an item of expenditure. It was also stated that the civil suits have been filed by the appellant's society against M/s. Raghvendra Constructions, M/s. Sky Top Builders and M/s. Divine Constructions for the recovery of the advances obtained by them from the assessee-society and they were given to understand that these suits were pending disposal. M/s. Raghvendra Construction, M/s. Sky Top Builders and M/s. Divine Constructions appeared to have stated before the Income Tax Authorities that they had signed blank vouchers and they had not obtained any advances and in some cases wherever they had received advances, they had performed the work and, therefore, nothing was due by them to the society. It was submitted by the learned authorised representative for the assessee Shri Venkatesan, that the statements made by them at the back of the appellant were false and motivated to deny the appellant-society the amounts the society was entitled to recover from them and they were merely self-serving statements and defence to defeat the rights of the society to obtain refunds from them in the pending suits.;