2013 (11) TMI 571 - AT - Income Tax

Assessee Appeals Partially Allowed: Books Rejection Set Aside, Additions Deleted, Interest Upheld

M/s UNIQUE BUILDERS & DEVELOPERS (AJAY) Versus DEPUTY COMMISSIONER OF INCOME TAX

M/s UNIQUE BUILDERS & DEVELOPERS (AJAY) Versus DEPUTY COMMISSIONER OF INCOME TAX - TMI Issues Involved:1. Rejection of Books of Account and Application of Percentage Completion Method.2. Addition on Account of Alleged Undisclosed Payments to Agriculturists.3. Addition on Account of Business Income from Development Agreement.4. Disallowance Under Section 40(a)(ia) for Non-Deduction of TDS.5. Levy of Interest Under Sections 234B and 234D.Detailed Analysis:1. Rejection of Books of Account and Application of Percentage Completion MethodThe AO rejected the books of account of the assessee under Section 145(3) of the Act, citing the non-maintenance of a detailed qualitative and quantitative stock register, unverified vouchers for direct expenses, and incriminating documents found during the search indicating 'out of books' cash receipts. The AO applied the percentage completion method instead of the project completion method followed by the assessee, resulting in an addition of Rs. 46,69,928/- for the assessment year 2008-09.The CIT(A) upheld the AO's decision to reject the books of account and apply the percentage completion method. However, the Tribunal found that the AO's reasons for rejecting the books were not factually correct and that the assessee's accounts were correct and complete, regularly employing the project completion method. The Tribunal held that the AO could not change the method of accounting regularly adopted by the assessee and set aside the decision to invoke Section 145(3).2. Addition on Account of Alleged Undisclosed Payments to AgriculturistsThe AO made an addition of Rs. 1.85 crores based on cash deposits in the bank accounts of the sellers of land, alleging that these were undisclosed payments made by the assessee. The AO relied on statements made by the sellers during the search, which were later retracted. The CIT(A) partially upheld the AO's addition, sustaining Rs. 25 lakhs and deleting the balance.The Tribunal found that the AO did not provide the assessee with copies of the statements or an opportunity to cross-examine the sellers, violating principles of natural justice. The Tribunal held that no addition could be made based on such unverified statements and deleted the entire addition of Rs. 1.85 crores.3. Addition on Account of Business Income from Development AgreementThe AO treated the development agreement between the assessee, UAHPL, and RIL as an agreement to sell, considering the security deposit of Rs. 105.85 crores as sale consideration, resulting in an addition of Rs. 82.69 crores. The CIT(A) partially upheld the AO's decision, confirming the addition of Rs. 29.95 crores for the first parcel of land and deleting Rs. 52.74 crores for the second parcel, which was not developed due to acquisition proceedings.The Tribunal found that the development agreement did not amount to a sale of land and that the security deposit could not be considered as sale consideration. The Tribunal held that the security deposit was a liability and not income, deleting the entire addition of Rs. 82.69 crores.4. Disallowance Under Section 40(a)(ia) for Non-Deduction of TDSThe AO disallowed Rs. 19,28,401/- under Section 40(a)(ia) for non-deduction of TDS on payments made to Asipac. The CIT(A) deleted the disallowance, holding that the payments were reimbursements of expenses and not professional fees, thus not subject to TDS.The Tribunal upheld the CIT(A)'s decision, confirming that TDS was not required on reimbursement of expenses.5. Levy of Interest Under Sections 234B and 234DThe CIT(A) upheld the levy of interest under Sections 234B and 234D. The Tribunal noted that the charging of interest is consequential and does not require specific adjudication.Conclusion:The Tribunal allowed the assessee's appeals in part, rejecting the grounds of the Department's appeals. The Tribunal set aside the rejection of books of account and the application of the percentage completion method, deleted the additions for undisclosed payments to agriculturists and business income from the development agreement, and upheld the deletion of disallowance for non-deduction of TDS. The levy of interest under Sections 234B and 234D was upheld as consequential.