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 2014-15, considering assessee's declared 8% profit rate in returns filed under section 153A. Regarding cash payments to landlords, the tribunal noted revenue cannot take contradictory positions when similar payments were accepted in related entity's case. Matter remanded to AO to verify if payments were examined and deleted in M/s. Squaremile Projects case, directing no addition if answer is affirmative.

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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.

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