2023 (6) TMI 1475 - AT - Income Tax

Assessee's on-money addition reduced from Rs. 9.57 crores to Rs. 1.60 crores using 8% rate from previous year

The DCIT, Central Circle, Vapi Versus M/s. M. Poonam Developers

ITAT SURAT upheld CIT(A)'s order reducing on-money addition from Rs. 9.57 crores to Rs. 1.60 crores based on 8% rate applied in assessee's own case for ... Unexplained money u/s 69A - addition of unaccounted 'on-money' receipts - NP determination - assessments have bene made on the basis of survey u/s 133A - HELD THAT:- ITAT in its order for A.Y 2017-18 [2022 (5) TMI 1670 - ITAT SURAT] in the assessee’s own case have held that the rate of 8% is held to be the rate applicable to the assessee on the basis of peculiar circumstances and should not be held as a precedent for any preceding or succeeding assessment years. In the case of the assessee, the assessments have bene made from A.Y 2015-16 to 2019-20, on the basis of survey u/s 133A and during the course of the said survey, evidences of receipt of on-money were found and impounded. The additions in all these 5 assessment years have been made on the basis of incriminating material found during the course of survey. Therefore, the facts and circumstances which are applicable to A.Y. 2017-18 are appliable to the impugned assessment year also. The fact of the assessee’s case are totally identical to the facts of the A.Y 2017-18. Hence, following the decision of the Hon'ble ITAT for A.Y 2017-18 in assessee’s own case on identical facts, the CIT(A) directed the AO to take 8% of on-money receipts as income of the assessee. Set off of IDS declaration disallowed to the assessee - CIT(A) noted that after allowing the benefit of declaration under IDS, 2016 no additional income need to be brought to tax - HELD THAT:- We note that assessee is entitled for set off of IDS declaration and CIT(A) based on the facts narrated above, has rightly allowed the benefit of declaration under IDS, 2016. On a careful reading of the CIT(A) order and the findings thereon, we do not find any valid reason to interfere with the decision and findings of the CIT(A) in holding that the assessee is entitled for the benefit of declaration under IDS, 2016. Unexplained cash credit u/s 68 - Revenue argued that ‘on-money’ should be taxable u/s 115BBE as such ‘on-money’ does not pertain to assessee`s business - HELD THAT:- Income Tax Authorities have recorded the statement of assessee, and in that statement the assessee had stated that he had received ‘on-money’ from the customers to whom the flats were sold. In addition to this, in the declaration under IDS, 2016 made by the assessee, the assessee has mentioned that he is making disclosure on account of ‘onmoney’ received or to be received from the customers by selling flats of his particular project. Therefore, such ‘on-money’ should be assessed under the normal provisions of the Act and not u/s 115BBE. Abdul Hamid [2020 (8) TMI 141 - ITAT GAUHATI] - Thus ‘on-money’ should be assessed under the normal provisions of the Act and not u/s 115BBE. CIT(A) has erred in re-calculating the total on-money on booking of the flats during the year under consideration as against the ‘on-money’ calculated by the assessing officer on the basis of incriminating impounded material.” - CIT(A) observed that the entire amount of sale proceeds cannot be brought to tax as the assessee has shown the registered sale value of the said flats in the Profit & Loss account in the years in which sale deeds of the said flats are executed. In the impugned assessment year no sale deed has been executed and only some flats having area of 45,018 sq. ft, have been booked and entire amount of sale has been received. The assessing officer has not identified the particular flat which is booked during the impugned assessment year. The analysis of sales given by the assessee during the appellate proceedings suggests that the average registered value of the flats sold by the assessee is Rs. 1844 per sq. ft. and the evidences found during the course of survey suggest that the flats are booked at the rate of Rs. 2200 per sq. ft. Thus the average on-money received by the assessee is in the range of Rs. 356/- per sq. ft. (Rs.2200 - Rs. 1844 = Rs. 356). Thus the ‘on money’ received by the assessee on booking of the flats having area of 45018 sq. ft. is of Rs. 1,60,26,408/-and not Rs. 9,57,99,600/- as determined by the assessing officer. We have gone through the above findings of ld CIT(A) and noted that there is no infirmity in the conclusion reached by ld CIT(A), hence we confirm the findings of ld CIT(A) and dismiss the grounds raised by the Revenue. Addition relying upon the whatsapp chats and loose papers found at the premises during the course of survey and extrapolating the amount in random manner - HELD THAT:-Revenue has primarily reiterated the stand taken by the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity. We note that addition is part of ‘on-money’, received by assessee and considering the facts that said money may belong to assessee, therefore we confirm the order of ld CIT(A) and dismiss assessee`s cross objection. 1. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment include:Whether the addition of unaccounted 'on-money' receipts should be fully taxed or limited to the profit element.Whether the 'on-money' receipts should be taxed as regular business income or as unexplained cash credit under section 68 of the Income Tax Act, 1961.Whether the assessee is entitled to set off the amount declared under the Income Declaration Scheme (IDS) 2016 against the 'on-money' receipts.Whether the recalculation of 'on-money' receipts by the CIT(A) was justified.Whether the addition of 'on-money' receipts on commercial space shops was correctly deleted by the CIT(A).Whether the reliance on WhatsApp chats and loose papers for making additions was justified.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Taxation of 'On-Money' ReceiptsLegal Framework and Precedents: The court referred to precedents such as CIT vs. President Industries and CIT vs. Gurubachhan Singh J. Juneja, establishing that only the profit element of unaccounted receipts should be taxed, not the gross receipts.Court's Interpretation and Reasoning: The court agreed with the CIT(A) that only the profit element should be taxed. The CIT(A) applied a net profit rate of 8% on the 'on-money' receipts, following the ITAT's decision in the assessee's own case for a prior year.Conclusion: The court upheld the CIT(A)'s decision to tax only the profit element at 8% of the 'on-money' receipts.Issue 2: Classification of 'On-Money' ReceiptsLegal Framework and Precedents: The court considered whether the 'on-money' should be taxed under section 68 as unexplained cash credit, which would be taxed at a higher rate under section 115BBE.Court's Interpretation and Reasoning: The court found that the 'on-money' receipts were part of the business income, as they were linked to the sale of flats, and thus should not be taxed under section 68.Conclusion: The court upheld the CIT(A)'s decision to tax the 'on-money' as regular business income.Issue 3: Set Off of IDS DeclarationLegal Framework and Precedents: The court referred to the Income Declaration Scheme, 2016, which allows income declared under the scheme to be used to explain transactions in subsequent assessment years.Court's Interpretation and Reasoning: The court agreed with the CIT(A) that the assessee was entitled to set off the IDS declaration against the 'on-money' receipts, as there was a direct nexus between the declared income and the 'on-money' receipts.Conclusion: The court upheld the CIT(A)'s decision to allow the set off of the IDS declaration.Issue 4: Recalculation of 'On-Money' ReceiptsLegal Framework and Precedents: The court examined whether the recalculation of 'on-money' receipts by the CIT(A) was based on evidence.Court's Interpretation and Reasoning: The CIT(A) recalculated the 'on-money' based on the difference between the market rate and the registered sale value, which was supported by evidence from the survey.Conclusion: The court upheld the CIT(A)'s recalculation of 'on-money' receipts.Issue 5: Addition of 'On-Money' on Commercial SpacesLegal Framework and Precedents: The court considered whether the addition of 'on-money' on commercial spaces was justified without supporting evidence.Court's Interpretation and Reasoning: The court found that the addition was based on presumption and not supported by any incriminating material.Conclusion: The court upheld the CIT(A)'s decision to delete the addition of 'on-money' on commercial spaces.Issue 6: Reliance on WhatsApp Chats and Loose PapersLegal Framework and Precedents: The court examined whether reliance on WhatsApp chats and loose papers for making additions was justified.Court's Interpretation and Reasoning: The court found that the addition based on such evidence was not supported by concrete incriminating material.Conclusion: The court dismissed the cross-objections raised by the assessee challenging the reliance on WhatsApp chats and loose papers.3. SIGNIFICANT HOLDINGSCore Principles Established: The court reinforced the principle that only the profit element of unaccounted receipts should be taxed, not the gross receipts. It also upheld the classification of 'on-money' as regular business income and allowed the set off of IDS declarations against 'on-money' receipts.Final Determinations on Each Issue: The court dismissed the appeals filed by the Revenue and upheld the CIT(A)'s decisions on all issues, including the taxation of 'on-money' receipts, the classification of 'on-money' as business income, the recalculation of 'on-money' receipts, and the deletion of additions based on presumption.