2022 (7) TMI 1500 - AT - Income Tax

Real estate developer's profit rate on unaccounted sales reduced from 40% to 15% considering declared profits

ITAT Hyderabad addressed unaccounted sale of houses and plots, reducing profit estimation rate from 40% to 15% on suppressed turnover for AY 2013-14 and ... Unaccounted sale of independent houses and plots - estimation of profit on suppressed turn over of the assessee shown in the return of incomes filed u/s 153A - HELD THAT:- Once it was agreed by the Assessing Officer based on the evidence that the entire sale consideration pertaining to 11 independent houses and 7 plots in the respective AYs from A.Y 2011-12 to A.Y. 2015-16 were duly shown by the assessee then the correct course would be to tax the turnover for these two years which pertain to AYs.2013-14 and 2014-15 only. At this stage, it is useful to mention that the co-ordinate Bench of the Tribunal in the case of Sampada Homes [2018 (9) TMI 471 - ITAT HYDERABAD] had revised the rate of 40% on the total turnover and had reduced it to 10%. However, the said decision was contested by the DR for Revenue showing that it pertains to Villas issues hence cannot be relied upon. Nonetheless, it is an undisputed fact that the assessee received its share in the project which has duly been mentioned by the Assessing Officer in para 6 of his order, wherein it was mentioned that M/s. Sri Nilaya Constructions developed a venture at Badangapet in an area of 24 acres and in the return of income on pages 62, 66, the assessee had duly mentioned the profit from Sampada homes which was calculated by the assessee based on estimating the profit at 8% of the turnover. In our view, though the co-ordinate Bench of the Tribunal had applied the rate of 10% as against 40% applied by CIT(A) on the suppressed turnover, however considering the totality of the peculiar facts of the present case, when the assessee had Admitted the total turnover in the return of income filled under section 153A and had shown profit at the rate of 8%, whereas Assessing Officer held total turnover as income of the assessee and CIT(A), we are of the opinion that rate of 15% is required to be applied as against 40% as applied by CIT(A) on the suppressed turn over of the assessee shown in the return of incomes filed u/s 153A of the Act for estimating the profit of assessee for both the years. In light of the above, grounds partly allowed. Cash payments to Landlords - unexplained source of investment/payment made to the landlords - HELD THAT:- As the assessee had filed the documents pertaining to the assessment record, in the form of notices, explanations and orders passed in the case of M/s. Squaremile Projects showing that similar questions were posed by the AO to M/s. Squaremile Projects and thereafter the AO had deleted the additions. Therefore the revenue could not be permitted to take a contradictory stand in the case of the assessee when the relief was granted for the same transaction to M/s. Squaremile Projects. Once all payments made to the landlords have been accepted in the case of M/s. Squaremile Projects, then it is not open to the Assessing Officer as well as ld.CIT(A) to confirm the very same amount in the hands of the assessee. The law is fairly settled that the additions should not be ordinarily made based on a statement, as the opportunity should be granted to explain his case and rebut the allegation. In the present case, the assessee was able to explain the source of the payment made to the landowners in their case record of M/s. Squaremile Projects, though the above said was brought to the notice of CIT(A), however, ld.CIT(A) had made additions solely on the basis of the statement, which cannot be countenanced. We disapprove of it. As various documents are specifically filed in the form of additional evidence before us hence ground no 2 to 5 are remanded back to the file of AO for the limited purpose to verify additional evidence now filled before us and find out whether the undisclosed cash payment made towards the purchase of land was examined and deleted by the Assessing Officer in the case of M/s. Squaremile Projects or not and if the answer to the above question is yes then no addition should be made in the hands of the assessee. Thus, grounds allowed for statistical purposes. Issues Involved:1. Unsubstantiated cash payments to landlords.2. Unexplained cash loans.3. Treatment of business turnover and income computation.4. Unaccounted sale of independent houses and plots.5. Long Term Capital Gain.6. Undisclosed income.7. Unsubstantiated claim for exemption.Issue-wise Detailed Analysis:1. Unsubstantiated Cash Payments to Landlords:The assessee contested the addition of Rs. 3,18,24,000 as unsubstantiated cash payments to landlords. The AO based the addition on a statement made during the search, where the assessee admitted to making cash payments for land purchases, which were recorded as advances from customers in the books. The assessee argued that these payments were accounted for in the books of M/s. Squaremile Projects. The CIT(A) dismissed the assessee's claim, relying on the statement made during the search. However, the Tribunal remanded the issue back to the AO for verification, noting that similar payments in the case of M/s. Squaremile Projects were accepted without additions.2. Unexplained Cash Loans:The assessee challenged the addition of Rs. 1,27,00,000 as unexplained cash loans, arguing that these were advances from customers recorded in the balance sheet. The CIT(A) upheld the AO's addition, but the Tribunal did not specifically address this issue separately, implying it was part of the broader context of the unsubstantiated cash payments and overall turnover considerations.3. Treatment of Business Turnover and Income Computation:The AO treated the entire turnover of Rs. 1,45,00,000 as business income, applying a 40% profit rate. The assessee argued that only 8% should be applied under section 44AD. The Tribunal referred to similar cases where a reasonable profit estimation was applied and concluded that a 15% profit rate was appropriate, reducing the CIT(A)'s 40% estimation.4. Unaccounted Sale of Independent Houses and Plots:The AO added Rs. 1,45,00,000 as unaccounted sales, based on the assessee's admission during the search. The assessee claimed these sales were declared in returns filed under section 153A. The CIT(A) confirmed the AO's addition but directed a 40% profit rate. The Tribunal, considering industry standards and similar cases, directed a 15% profit rate on the suppressed turnover.5. Long Term Capital Gain:The AO added Rs. 38,27,559 as Long Term Capital Gain, which the assessee did not contest separately. The Tribunal's discussion implied that this was part of the overall turnover and profit estimation issues.6. Undisclosed Income:The AO added Rs. 2,73,440 as undisclosed income. This issue was not separately contested by the assessee, and the Tribunal's judgment did not specifically address it, suggesting it was part of the broader context of the unaccounted sales and overall income estimation.7. Unsubstantiated Claim for Exemption:The AO disallowed Rs. 2,65,310 claimed as exempt income. The assessee argued this was share of profit from M/s. Sampada Homes, which was accepted by the same AO in the firm's assessment. The CIT(A) agreed with the assessee, noting the AO's remand report confirmed the claim, and deleted the addition.Conclusion:The Tribunal partly allowed the appeals for statistical purposes. It remanded the issue of unsubstantiated cash payments to landlords back to the AO for verification, directed a 15% profit rate on the suppressed turnover instead of 40%, and upheld the deletion of the unsubstantiated exemption claim. The appeals were partly allowed for statistical purposes, directing further verification and appropriate adjustments by the AO.