2023 (11) TMI 195 - AT - Income Tax

On-money income estimation limited to 25% for 23 specific buyers identified in search proceedings under Section 132

A.C.I.T., Central Circle- 4, Surat. Versus M/s Shree Narayan Corporation

The ITAT Surat upheld CIT(A)'s order limiting on-money income estimation to 25% for only 23 specific buyers whose details were found during search ... Estimation of income - On Money - Unaccounted on money receipt from the real estate project - Addition by making extrapolation of on money in respect of whole of the saleable area and worked out component of ‘on money’ - incriminating documents found and seized during the course of search proceedings u/s 132 and admissions made by the partner of the firm - AO held that the contention of assessee regarding the cancellation of booking of flats in only an afterthought, when the evidence in respect of receipt of on money was found and seized during the search proceedings - CIT(A) estimated 25% of such on money as the income component - HELD THAT:- Being a search case, we have independently examined the facts of the present case and find that there was no incriminating material qua the entire saleable area. Though the assessee raised a plea before the Assessing Officer that 19 persons have cancelled their bookings after a search action due to fear of interrogation and investigation by the search team. No proof of refund of their deposits or bookings is either shown to the AO while filing reply to the show cause notice except assertion that liability of bookings were refunded. In such situation, we find that the ld. CIT(A) was justified in considering the on money component in respect of such 23 persons. For other remaining buyers, AO has not brought any evidence except assuming and presuming and making extrapolation that assessee has received on money from each and every buyer. Thus, we find that the ld. CIT(A) was quite right and justified in considering the on money in respect of the persons whose details were found during the search action. Neither the search party nor the Assessing Officer made any investigation from the purchasers or the other person whose names were found in the seized material about the payment of additional on money. AO estimated on money after rejecting books of account by considering whole saleable area by multiplying figure of rate found in the seized material. Such application of formula of on money with regard to entire saleable are is not justified, particularly when there is no independent or corroborate evidence to support such action. Further, the assessing officer being investigator and adjudicator was under obligation to consider the entire seized material. The assessing officer has clearly recorded that the assessee receiving on money in cash and was incurring expenditure therefrom. No such fact was taken into consideration by assessing officer while estimating income from on money component. We find that in CIT Vs Indeo Airway (P) ltd [2012 (9) TMI 97 - DELHI HIGH COURT] held that where receipt recorded in the searched documents are believed to be income, entries of expenditure recorded therein are also to be believed without asking for more evidence for such expenditure. Thus, with our aforesaid additional observation, we uphold the order of ld. CIT(A). In the result, grounds of appeal raised by the revenue are dismissed. Issues Involved:1. Restriction of addition on account of unaccounted on-money receipt.2. Extrapolation of income by the Assessing Officer.3. Consideration of on-money receipt for specific units versus the entire project.4. Justification of profit rate applied to on-money component.Summary:Issue 1: Restriction of Addition on Account of Unaccounted On-Money ReceiptThe Revenue contested the CIT(A)'s decision to restrict the addition of Rs. 3,82,25,980/- to Rs. 27,428/- based on unaccounted on-money receipts from the real estate project. The Assessing Officer (AO) had made the addition based on incriminating documents found during search proceedings and admissions by the firm's partner. The CIT(A) found that the AO's estimation of on-money receipt was excessive and not justified.Issue 2: Extrapolation of Income by the Assessing OfficerThe AO extrapolated income in respect of the entire project based on the booking of 23 units, ignoring the fact that the remaining 81 units were sold at a lower rate. The CIT(A) noted that the AO's approach of applying the highest selling price per square foot to the entire saleable area was not justified. The CIT(A) restricted the on-money determination to the 23 units mentioned in the seized documents.Issue 3: Consideration of On-Money Receipt for Specific Units Versus the Entire ProjectThe CIT(A) held that the seized documents only contained details of 23 flats in Tower B of the project and thus, on-money should be determined for these 23 flats only. The AO's approach of considering on-money for the entire saleable area was rejected. The CIT(A) prepared a detailed analysis and concluded that the on-money component for the 23 flats amounted to Rs. 4.01 crores.Issue 4: Justification of Profit Rate Applied to On-Money ComponentThe AO applied a 25% profit rate to the estimated on-money receipt, which was contested by the assessee. The CIT(A) agreed that the 25% rate was excessive and reduced the addition to Rs. 27,428/- after considering the already declared additional income of Rs. 1 crore by the assessee. The CIT(A) followed judicial precedents and concluded that only the profit component of the on-money should be taxed.Conclusion:The Tribunal upheld the CIT(A)'s decision, finding no justification for the AO's extrapolation of on-money receipt to the entire project and the application of a 25% profit rate. The Tribunal noted that the AO failed to provide corroborative evidence for the entire saleable area and emphasized that only the profit component of the on-money should be considered. The appeal by the Revenue was dismissed.