2019 (3) TMI 631 - AT - Income Tax

Tax Appeals: Reduction of Additions, Deletion of Unaccounted Cash Payments, Re-examination Directed

M/s. Pumarth Infrastructure Pvt. Ltd. Versus ACIT (Central) 1, Indore

The Tribunal partly allowed the appeals for AY 2009-10 and 2010-11 by reducing the additions for 'On Money' and deleting the unaccounted cash payments. ... Addition for gross amount of ‘On-Money’ received from the projects run by the assessee - HELD THAT:- Addition only for the profit element in ‘On-Money’. Respectfully following the case of M/S. PRIME DEVELOPERS [2016 (7) TMI 967 - BOMBAY HIGH COURT] and examining facts of the instances case we find that the ‘On-Money’ has been received by the assessee company from its business activity of developing various projects. Undoubtedly against unaccounted ‘On- Money’ there is also an element of unaccounted expenditure which cannot be brushed aside and further looking to the fact that in the very same Group concern addition confirmed by the ITSC is @ 25% of “On-Money”. We are therefore inclined to hold that in the instant three appeals, addition should be sustained, only to the extent of 25% of the alleged ‘On-Money’. Addition u/s 69 has been made for unaccounted payment for purchase of land - HELD THAT:- Our view of giving set off of ‘On-Money’ payment against the ‘On money’ received found support from the above judgment of Hon'ble Gujarat High Court in TIRUPATI CONSTRUCTION COMPANY [2014 (11) TMI 806 - GUJARAT HIGH COURT] and thus in the given facts and circumstances of the case, we are of the considered view that there was no justification in making addition for unaccounted payment of ₹ 1,30,53,000/- paid to the Thakur Family towards ‘On- Money’ for land development project when ‘On-Money’ received from sale of plots have been subjected to tax at net profit rate of 25%. Disallowance u/s 40A(3) - assessee has incurred cash expenses over and above ₹ 20,000/- - HELD THAT:- Looking to the request of Ld. counsel for the assessee for setting aside the issue which goes opposed by the revenue authorities. We direct the Ld. AO to examine this issue of disallowance u/s 40A(3) of the Act for various expenses incurred in cash afresh after providing necessary opportunity to the assessee for filing documents and evidence in support of its claim that no disallowance is called for. Accordingly this issue for disallowance u/s 40A(3) of the Act is allowed for statistical purposes. Issues Involved:1. Legality and jurisdiction of the assessment.2. Sustaining additions for 'On Money' received.3. Computation of actual profit and deduction of expenses.4. Addition of unaccounted cash payments.5. Disallowance under Section 40A(3).Detailed Analysis:1. Legality and Jurisdiction of the Assessment:The assessee argued that the entire assessment was illegal, void, and without jurisdiction, and in breach of natural justice principles. However, this ground was dismissed as not pressed by the assessee's counsel during the proceedings.2. Sustaining Additions for 'On Money' Received:The common issue in all three appeals was the addition of 'On Money' received by the assessee for the sale of plots/row houses. The amounts were Rs. 96,76,800 for AY 2009-10, Rs. 3,09,80,760 for AY 2010-11, and Rs. 50,96,575 for AY 2011-12. The Assessing Officer (AO) made these additions based on seized documents during a search operation indicating receipt of 'On Money'. The assessee contended that the AO erred by not considering the expenses incurred from the 'On Money'. The Tribunal noted that the lower authorities should have considered the net profit rather than the gross amount, as supported by various judicial precedents. The Tribunal concluded that only 25% of the 'On Money' should be added to the income, resulting in the revised additions of Rs. 24,19,200 for AY 2009-10, Rs. 77,45,190 for AY 2010-11, and Rs. 12,74,144 for AY 2011-12.3. Computation of Actual Profit and Deduction of Expenses:The assessee argued that the AO did not compute the actual profit and deduct expenses from the 'On Money' received. The Tribunal agreed, citing the Income Tax Settlement Commission (ITSC) and various judicial precedents, which indicate that only the net profit should be added to the income. The Tribunal followed the ITSC's approach of adding 25% of the 'On Money' as the net profit, thereby allowing the deduction of expenses.4. Addition of Unaccounted Cash Payments:For AY 2010-11, the AO added Rs. 1,30,53,000 as unaccounted cash payments to the Thakur family for land purchase. The Tribunal found that the 'On Money' received from the sale of plots was used for these payments. The Tribunal allowed the assessee to set off the 'On Money' payments against the 'On Money' received, thereby deleting the addition of Rs. 1,30,53,000.5. Disallowance under Section 40A(3):For AY 2011-12, the AO disallowed Rs. 14,40,000 under Section 40A(3) for cash payments exceeding Rs. 20,000. The assessee requested a fresh examination of these expenses, which the Tribunal granted. The Tribunal directed the AO to re-examine the disallowance after providing the assessee an opportunity to submit supporting documents.Conclusion:- The Tribunal partly allowed the appeals for AY 2009-10 and 2010-11 by reducing the additions for 'On Money' and deleting the unaccounted cash payments.- For AY 2011-12, the Tribunal allowed the appeal for statistical purposes, directing a re-examination of the disallowance under Section 40A(3).- The alternative grounds were dismissed as academic in nature.The order was pronounced in the open Court on 12.02.2019.