2024 (1) TMI 542 - AT - Income Tax

ITAT modifies profit rate to 15% on unaccounted receipts, upholds Section 40A(3) deletion and assessment validity

ITAT Hyderabad modified CIT(A) order directing AO to adopt 15% profit rate on unaccounted receipts of Rs. 68.17 crores for AY 2016-17 to 2020-21, ... Estimation of profit - unaccounted receipts - HELD THAT:- Considering the totality of the facts of the case and considering the fact that the assessee has already offered the additional income to the tune of Rs. 6.00 crores in the return of income filed for A.Y 2016-17 to 2019-20, we modify the order of the learned CIT (A) and direct the Assessing Officer to adopt the profit rate of 15% on the unaccounted receipts of Rs. 68.17 crores for the A.Y 2016-17 to 2020-21, Disallowance u/s 40A(3) - CIT (A) while deleting the addition held that the provisions of section 40A(3) do not apply when the income is estimated - HELD THAT:- CIT(A) relied on the decision of the Hon'ble jurisdictional High Court in the case of M/s Indwell Constructions [1998 (3) TMI 121 - ANDHRA PRADESH HIGH COURT] where it has been held that no disallowance u/s 40A(3) can be made when the books of account are rejected and the net profit rate is estimated. Since in the instant case also the profit of the assessee has been estimated, therefore, the decision of the Hon'ble jurisdictional High Court relied on by the learned CIT (A) is squarely applicable to the facts of the case of the assessee and therefore, we do not find any infirmity in the order of the CIT (A) in deleting the addition u/s 40A(3). Validity of assessment u/s 153A in absence of any incriminating material - HELD THAT:- It is an admitted fact that various payments details and name of individual customers were found during the course of search which contain receipts in cash as well as through Bank. When these documents were confronted to the Directors of the Company, they have admitted that these were cash payments received from customers which were reflected in the consolidated statement found during the course of search. Therefore, it cannot be said that no incriminating material was found during the course of search. CIT (A) has thoroughly discussed this issue while upholding the addition made in the return filed in response to notice u/s 153A. Under these circumstances, we do not find any infirmity in the order of the learned CIT (A) on this issue and the grounds raised by the assessee are dismissed. Addition of excess expenditure - Addition on the basis of cash expenditure incurred between April, 2008 to December, 2015 as per survey proceedings and actual cash expenditure as per books of account - CIT(A) deleted addition - HELD THAT:- We find the AO during the proceedings u/s 153A, called for the material impounded during survey available with the DCIT, Circle-14(1) and on verification of the impounded material noticed that the cash expenditure of Rs. 9,83,81,222/- was found in the books as against Rs. 18.68 crores that was allowed during the survey assessment. From the impounded survey material, he arrived at a different conclusion on the same facts that were used to assess income during survey. This in our opinion, is a change of opinion by the A0 in interpreting the material impounded during survey during the current 153A proceedings. CIT (A) relying the decision of the Hon'ble Supreme Court in the case of Sun Engineering Works (P) Ltd [1992 (9) TMI 1 - SUPREME COURT] observed that the Assessing Officer is not allowed to review his own decision directly or indirectly unless there is material evidence to show that the earlier decision arrived at was incorrect or new facts were discovered during search. However, we find from the impugned assessment order that the AO sought to re- examine the impounded material during survey to arrive at a different conclusion which is nothing but reviewing one's own decision which is impermissible in law. Therefore, we concur with the finding of the learned CIT (A) that the addition made on account of unsubstantiated cash expenditure cannot be sustained. Estimation of income on account of on-money receipts/cash receipts - @15% on the gross receipts while adjudicating the appeal on this issue by rejecting the books of account - HELD THAT:- As held in the case of M/s. Indwell Corporation [1998 (3) TMI 121 - ANDHRA PRADESH HIGH COURT] that once the books are rejected and the income is estimated, no new disallowance can be made on the same set of books. Since in the instant case the income has been estimated @15% of the gross cash receipts, therefore, it is deemed that the assessee has incurred the remaining 85% as its expenses. The above disallowance of cash expenses gets subsumed in the same. Therefore, in our opinion, no new disallowance can be made on this issue. Order of the learned CIT (A) deleting the addition of income on account of unsubstantiated cash expenditure is upheld and the ground raised by the Revenue on this issue is dismissed. Non granting of TDS credit - HELD THAT:- It is an admitted fact that this issue was neither raised before the AO nor before the CIT (A) and therefore, there was no occasion for either of the authorities to adjudicate the issue. However, since it is the case of the assessee that the TDS has been deducted by the customers in the name of M/s Skill Promoters (Firm) which was subsequently changed to M/s. Skill Promoters (P) Ltd and such TDS is supported by Form 26AS, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to verify the claim of such TDS credited and decide the issue as per law after giving due opportunity of being heard to the assessee. The grounds raised by the assessee are accordingly allowed for statistical purposes. Disallowance of personal expenditure - HELD THAT:- Admittedly, the so-called expenditure which according to the Assessing Officer is personal in nature was found from the seized documents which contain both income as well as expenditure. The income from such unrecorded sales has already been estimated in the preceding paragraphs. As held in the case of M/s. Indwell Corporation [1998 (3) TMI 121 - ANDHRA PRADESH HIGH COURT] Once the books were rejected and the profit was estimated no further disallowance can be made on the same rejecting the books as the expenses gets subsumed in the estimation of profit. Since the learned CIT (A) while deleting the addition has followed the decision of the Hon'ble jurisdictional High Court, therefore, in absence of any contrary material brought to our notice by the learned DR, the order of the learned CIT (A) on this issue is upheld and the grounds raised by the Revenue is dismissed. Applicability of provisions of section 28(vi)(a) - assessee has converted the unsold inventory into fixed asset and therefore, brought the same to tax as business income - asset was treated as a capital asset - CIT(A) deleted addition - HELD THAT:- We are of the considered opinion that the nature of the built-up area that was received by the assessee being a Developer in lieu of development of the land is stock-in-trade and this nature would continue to be so unless specifically converted into a capital asset. We concur with the findings of the learned CIT (A) that merely because some of the built-up area was leased out for earning rental income does not alter the nature of the asset and it would tantamount to exploitation of the unsold inventory to earn income. No infirmity in his order holding that provisions of section 28(vi)(a) do not apply to the facts of the case for the impugned A.Y. We therefore, uphold the order of the learned CIT (A) on this issue and the grounds raised by the Revenue are dismissed. Issues Involved:1. Validity of assessment under Section 153A in absence of incriminating material.2. Addition of undisclosed income with respect to cash receipts on sale of property.3. Disallowance under Section 40A(3) for cash expenses.4. Estimation of income on unaccounted receipts.5. Disallowance of personal expenditure.6. Applicability of Section 28(vi)(a) for treating stock-in-trade as fixed asset.7. Non-granting of TDS credit.Summary:1. Validity of Assessment under Section 153A:The assessee challenged the validity of the assessment under Section 153A, arguing that no incriminating material was found during the search. The Tribunal upheld the CIT(A)'s decision that various payment details and names of customers found during the search constituted incriminating material. Thus, the assessments under Section 153A were valid.2. Addition of Undisclosed Income:The Assessing Officer (AO) added Rs. 13,61,00,000 as undisclosed income based on cash receipts from property sales not recorded in the books. The CIT(A) rejected the books of account and estimated the income on these receipts at 30%, excluding amounts already taxed in previous assessments. The Tribunal upheld the CIT(A)'s decision but modified the profit estimation rate to 15% due to the inclusion of registration charges, additional services, and repetition of entries in the seized documents.3. Disallowance under Section 40A(3):The AO disallowed Rs. 26,93,878 under Section 40A(3) for cash expenses. The CIT(A) deleted this disallowance, citing that Section 40A(3) does not apply when income is estimated after rejecting the books of account. The Tribunal upheld the CIT(A)'s decision, referencing the jurisdictional High Court's ruling in M/s Indwell Constructions.4. Estimation of Income on Unaccounted Receipts:The CIT(A) estimated the income on unaccounted receipts at 30%, which the Tribunal found to be high. The Tribunal reduced the estimation to 15%, considering the nature of receipts and industry standards.5. Disallowance of Personal Expenditure:The AO added Rs. 2,24,60,000 as personal expenditure. The CIT(A) deleted this addition, stating that once books are rejected and profit is estimated, no further disallowance can be made. The Tribunal upheld the CIT(A)'s decision, following the jurisdictional High Court's ruling.6. Applicability of Section 28(vi)(a):The AO treated unsold inventory as fixed assets and added Rs. 78,24,80,921 as business income. The CIT(A) deleted this addition, stating there was no conversion of stock-in-trade to capital asset. The Tribunal upheld the CIT(A)'s decision, noting that leasing out property does not alter its nature as stock-in-trade.7. Non-granting of TDS Credit:The assessee claimed TDS credit for amounts deducted in the name of the predecessor firm. The Tribunal restored the issue to the AO for verification and appropriate action.Conclusion:All appeals by the Revenue were dismissed, and the appeals by the assessee were partly allowed. The Tribunal upheld the CIT(A)'s decisions on most issues, with modifications to the profit estimation rate and directions for TDS credit verification.