Income Tax Appeal: TDS timely deposited, no loss. Profit estimation directive at 10% advances. Excessive 15% rejected.

The Tribunal allowed the appeal regarding disallowance under Section 40(a)(ia) of the Income Tax Act, as the TDS was deposited before the assessment's completion, causing no revenue loss. On the issue of addition of income under Section 28, the Tribunal partly allowed the appeal by directing the AO to estimate profit at 10% of advances received during the relevant financial year, excluding opening balances. The Tribunal found the AO's 15% estimation on total advances, including opening balances, to be excessive. The final order was pronounced on 12/3/2021.

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Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Addition of income under Section 28 by treating advances received from customers as income.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia):
The first issue pertains to the addition of Rs. 41,84,879/- made by disallowance under Section 40(a)(ia) of the Income Tax Act, 1961. The assessee argued that the TDS along with interest was deposited on 31.3.2015, before the completion of the assessment, and supported this claim with a challan. The Revenue contended that the TDS was not deducted at the time of payment to contractors, and therefore, the entire amount was disallowed. The Tribunal noted that the assessee had deposited the TDS amount along with interest before the assessment was completed, as evidenced by the challan. The Tribunal concluded that no loss was caused to the revenue and allowed the assessee's appeal on this ground.

2. Addition of Income under Section 28:
The second issue concerns the addition of Rs. 1,68,54,180/- by treating 15% of total advances received from customers as income. The assessee, engaged in the real estate business, followed the project completion method for revenue recognition and argued that advances from customers are liabilities, not income. The Assessing Officer (AO) rejected the assessee's books of account, estimating income at 15% of the total advances received, due to the lack of supporting documents. The Tribunal acknowledged that the assessee consistently followed the project completion method, and profits should be recognized only upon the transfer of property title. The Tribunal referred to precedents, including the Gujarat High Court's decision in CIT vs Shivalik Buildwell Pvt Ltd., which supported the assessee's method. However, the Tribunal found the AO's estimation of 15% profit on the total advances, including opening balances, to be excessive and unreasonable. The Tribunal directed the AO to exclude the opening balance and estimate the profit at 10% of the advances received during the relevant financial year, thereby partly allowing the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the appeal on the first ground, concluding that the TDS was deposited before the assessment's completion, causing no revenue loss. On the second ground, the Tribunal partly allowed the appeal by directing the AO to estimate the profit at 10% of the advances received during the relevant financial year, excluding the opening balance from previous years. The final order was pronounced on 12/3/2021.

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