2015 (1) TMI 1498 - AT - Income Tax

Tribunal Confirms Deletion of Rs. 48,97,984 Addition; Methodology for On-Money from Flat Sales Ruled Flawed.

The Deputy Commissioner of Income Tax, Central Circle-1, Surat Versus M/s. Surya Enclave Developers

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 48,97,984, which was made by the Assessing Officer based on on-money received from ... On money receipts - NP Estimation - rejection of books of accounts - AO applied net profit rate of 16% - CIT(A) restricted the net profit @ 15% and deleted the addition - HELD THAT:- Books of accounts maintained by assessee were not proper and not reliable as complete receipts were not shown. Assessee himself admitted receipt of on money and disclosed an amount as unaccounted income on this account. The statement recorded of one purchaser confirmed the fact that assessee was getting on money. AO was justified in rejecting books of accounts. Estimation of on money done by AO was not found correct by CIT(A) as figures of on money received in one flat from an NRI buyer cannot be the basis for holding that same on money was received by assessee for all flats and also from the partner to whom 11 flats were given. Net profit rate of 16% applied by Assessing Officer was not found justified by CIT(A). Drawing the strength from various judicial pronouncements of ITAT Bench, CIT(A) observed that assessee has shown net profit of Rs. 2,00,00,000/- and for this net profit @ 15%, corresponding on money comes to Rs. 13,33,00,000/-.as against on money estimated by AO at Rs. 15,56,12,400/- (including flats given to partner with on-money). He took out the flats given to partner, profit shown by assessee of Rs.2,00,00,000/- was more than the reasonable amount of net profit received on balance flats. Accordingly, addition in question was deleted. This reasoned factual finding of CIT(A) needs no interference from our side. Appeal filed by Revenue is dismissed. Issues:1. Addition of on-money received on sale of flats in Surya Enclave Project.2. Estimation of net profit rate.3. Validity of CIT(A)'s decision in deleting the addition.Analysis:1. The appeal was filed by the Revenue against the CIT(A)'s order deleting the addition of Rs. 48,97,984 made on account of on-money received by the assessee on the sale of flats in the Surya Enclave Project. The Assessing Officer adopted an on-money figure based on a statement from an NRI buyer for one flat, extrapolating it to all flats in the project. The CIT(A) found the estimation incorrect as the same on-money amount could not be assumed for all flats and partners. The CIT(A) also noted discrepancies in the assessee's accounts and accepted a lower net profit rate of 15% compared to the Assessing Officer's 16%. The CIT(A) upheld the deletion of the addition based on the assessee's disclosed unaccounted income and reasonable net profit calculations.2. The Assessing Officer's estimation of on-money and application of a 16% net profit rate were challenged before the CIT(A) by the Revenue. The Revenue argued that the on-money received from one buyer should be considered for all flats, justifying the higher net profit rate. However, the CIT(A) found the Assessing Officer's approach flawed, considering the varying circumstances and the unreliable nature of the assessee's accounts. The CIT(A) relied on precedents and decided that a 15% net profit rate was reasonable based on the disclosed income and the on-money estimates. The CIT(A) concluded that the addition was not justified, and the net profit rate should be reduced to 15%.3. After considering the arguments from both sides, the Tribunal found that the assessee's accounts were not reliable, and the Assessing Officer's estimation method was flawed. The Tribunal agreed with the CIT(A)'s reasoning in deleting the addition based on the disclosed income and the reasonable net profit rate of 15%. The Tribunal upheld the CIT(A)'s decision, emphasizing that the factual findings and calculations were sound and did not warrant interference. Consequently, the appeal filed by the Revenue was dismissed, affirming the CIT(A)'s order.This detailed analysis highlights the issues raised in the judgment, the arguments presented by both parties, and the reasoning behind the final decision, providing a comprehensive overview of the case.