2022 (3) TMI 1564 - AT - Income Tax

AO's extrapolation of on-money receipts to 41% of turnover unsustainable without concrete evidence

DCIT, Central Circle-1 (2), Ahmedabad Versus Shri Pushkar Construction Co.

ITAT Ahmedabad held that AO's extrapolation of on-money receipts to 41% of entire turnover was unsustainable based on assumptions. The court found that ... On-money receive on unit/flat sold - money receipts reflected in seized material found from the premises of the third party - difference between document price and the actual price received by the firm was not accounted for in the regular books of accounts - as per appellant if addition on on-money is required to be made it should be restricted to net profit on alleged on-money mentioned in the loose paper pertaining to few units sold by the Appellant Firm - HELD THAT:- AO has extrapolated on-money receipts of 41% of entire turnover which according to us is not sustainable on assumption and presumption basis particularly when the cheque receipts for two schemes is Rs. 3.24. crores as reflects from the loose papers as against gross receipts shown in the books of account from A.Y. 2010-11 to 2015- 16 for Rs. 53.32 croes. According to the Ld. AO similar material related to Pushkar Infrastructure was also found during the course of search at third party which proves that the appellant is taking on-money on all the units but such contention cannot be accepted as Pushkar Infrastructure is altogether a different entity and have no relevance on the appellant’s case. AO is only empowered to confine himself on the incriminating material found during the course of search and material is to be treated as true and correct. In our considered opinion, when the Revenue is in possession of the incriminating material wherein certain sales instances were found recorded in respect of specific amount of on money alleged to have been charged by the assessee on the sale of flats the AO should have made addition only in respect of those sales instances and not extrapolate the said amount of on-money merely on presumption on the entire sale. We find extrapolation of the entire income of appellant in all the assessment years based upon on-money receipts reflected in the loose paper pertaining to few units sold by the appellant is found to be unjustified and on that basis addition is required to be restricted only to the undisclosed income of the assessee to the tune of Rs. 1,81,72,500/- for Pushkar-III and 1,69,49,500/- for Pushkar-IV. Remaining addition deserves to be deleted - Appeal preferred by the Revenue is dismissed Issues:1. Addition of unaccounted cash receipts in the assessee's income.2. Discrepancy between document price and actual price of flats sold.3. Extrapolation of on-money receipts on the entire turnover.4. Validity of addition based on incriminating material found during search.Analysis:Issue 1: Addition of unaccounted cash receiptsThe case involved the Revenue challenging the deletion of an addition made to the assessee's income for unaccounted cash receipts from the sale of flats. The Revenue contended that the assessee had not reflected certain business transactions in its books of accounts, leading to unaccounted cash receipts. The assessee, however, argued that all receipts were through cheques and properly recorded. The Assessing Officer (AO) added the unaccounted cash amount to the total income, which was later deleted by the Commissioner of Income Tax (Appeals) (CIT(A)). The Tribunal upheld the CIT(A)'s decision, emphasizing that the addition should be restricted to the net profit on alleged on-money receipts.Issue 2: Discrepancy between document price and actual priceThe AO found that the actual price of flats sold was higher than the price mentioned in registered documents, leading to unaccounted amounts. The AO calculated the unaccounted cash based on a ratio of 41% of the total value of flats booked/sold. The Tribunal noted the appellant's argument that the addition should be limited to the net profit on alleged on-money receipts, rather than extrapolating it to the entire turnover.Issue 3: Extrapolation of on-money receiptsThe AO extrapolated the on-money receipts of 41% based on a few units to the total turnover for all assessment years. The Tribunal found this extrapolation unjustified and held that additions should be restricted to specific instances supported by incriminating material. The Tribunal emphasized the need for concrete evidence before making such extrapolations.Issue 4: Validity of addition based on incriminating materialThe Tribunal considered various judgments, highlighting the importance of incriminating material found during search operations. It stressed that additions should be based on concrete evidence and not mere presumptions. The Tribunal held that the AO should confine additions to specific instances supported by incriminating material, rather than extrapolating amounts across all assessments.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of unaccounted cash receipts. The Tribunal emphasized the need for specific evidence before making additions to an assessee's income, rather than relying on presumptions and extrapolations.