TaxTMI 
TaxTMI 
2011 (4) TMI 1343
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....ove addition made by the AO and confirmed by CIT(A) may please be deleted. 2. The facts of the case are that assessee is engaged in the business of construction. It has undertaken a project for constructing houses/flats at Surat. A survey u/s 133A was carried out on 19.9.2007 at the business premises of the assessee at block 30, Model Town Park, Opp. Bhakti Dham Mandir, Magob, Surat. It is claimed by the AO that certain loose papers were found from the bag from Shri Ravi Khandelwal, a partner in the assessee firm. When confronted with the queries of cost of construction and purchase of material and sale price of the flats, Shri Ravi Khandelwal came forward to offer a sum of Rs. 10 crores as firm's unaccounted income for taxation for Asst. Year 2007-08 relevant to Asst. Year 2008-09. He also gave a bifurcation of expenditure/investment incurred out of the income of Rs. 10 crores as under :- (i) Unaccounted investment in model town park scheme (in 17 towners under construction) Rs.5,00,00,000/- (ii) Unaccounted stock of cement, steel, reti and other material found at the site office at Model Town Park, Magob, Surat. Rs.90,00,000/- (iii) Unexplained investment/expens....
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....cuments. Similarly, during the course of survey, the records loose papers and documents found from the assessee's premises were also shown to Shri Ravi Khandelwal and he had given opportunity to verify the contents therein and then only he admitted the figures shown in the papers as unaccounted income. If there was any mistake, it was upto the partner of the firm to point out then and there and clarify the matter. 4.6 Although the assessee has not retracted his statement, making the disclosure of Rs. 10,00,00,000/-, however, the assessee has taken 'on money' which was the unaccounted income of the assessee and the same was utilized for various purposes. The application of unaccounted income has been submitted by the assessee which has already been mentioned at various places in the order. The said amount should have been shown as income by the assessee which he has not done." The reasons for making addition of Rs. 10 crores were that assessee has taken 'on money' which was unaccounted income of the assessee and same was applied/utilized for various purposes as stated by Shri Ravi Khandelwal during the course of survey. 3. When the matter came up before the ld. CIT(A), he e....
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....cals & Fertilisers Ltd. vs. CIT 227 ITR 172 (SC) and in the case of CIT vs. British Paints India Ltd. 188 ITR 44 (SC). (8) The ld. CIT(A) referred to large number of decisions in support of his reasoning that income has to be computed and taxed each year without waiting for the completion of projects. These decisions are as under :- Tirthram Ahuja (P) Ltd. vs. CIT 103 ITR 15 (Del) CIT vs. Nandram Huntram 103 ITR 433 (Ori) Uttam Singh Duggal & Co. (P) Ltd. vs. CIT 127 ITR 21 (Del) Champion Construction Co. vs. ITO 5 ITD 495 (Mum Trib) Shree Nirmal Commercial Ltd/ 193 ITR 694 (Bom) Goodyear India Ltd. vs. State of Haryana 188 ITR 402, 428(SC) Rajpur Ruda Meha vs.State of Gujarat AIR 1980 (SC) 1707, 1708. Finally the ld. CIT(A) gave following decision :- "5. In view of the above discussion, I hold that against the unaccounted income of Rs. 10 crores offered by the appellant during the course of survey, no expenses can be claimed in any manner whatsoever, viz., by debiting corresponding expenses a/c and transferring it to WIP a/c as done by the appellant. The appellant has, in the written submission, also made a claim that if addition of Rs. 10 crores is n....
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....gly receipt of 'on money' has also been declared in the return. (7) The ld. AR submitted that entire advances against flats have been accounted for and have been shown as advances which included sum of Rs. 10 crores received as booking advance in cash and against which various expenses have been booked and shown against WIP. He submitted that in FY ending 31st March, 2010 assessee has sale receipt of Rs..13,13,54,304/- for sale of 141 flats and 8 shops totaling to 149 units. In FY 2010-11 upto 15.3.2011 assessee has sold total 55 units including 53 residential units for a sum of Rs. 5,47,37,970/-. In the two years assessee has taken proportionate booking advances of 'on money' of Rs. 4,18,68,899/- and of Rs. 1,82,09,630/-respectively. Present FY has not yet ended and assessee may further sell the flats and further adjust 'on money' against sale of such flats. He has still to sell 204 units. As and when these units are sold, the balance of 'on money' amounting to Rs. 6,00,78,529/- will be accounted for against sales. Therefore, it is incorrect on the part of the revenue to say that assessee has not disclosed 'on money' component declared during the course of survey. (8) It is ....
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....osition and give us to bring out the real facts." A: 26: Yes, Sir, as stated by you whatever investment in land I have made the whole of investment is not disclosed by me and similarly, whatever 'on money' per dwelling unit which has also not been disclosed but real data can be stated only after discussion and advice with my father. (adjourned for discussion as suggested by Shri Ravi Khandelwal) "Q. 27: Mr. Ravi Khandelwal. If you have talked and discussed with your father Vishwanath Khandelwal and other known persons then answer the question no.26 ? A. 27: Yes, I have discussed with my father & other known persons. Along with this I have also seen all the documents which were in impounded files. After considering, analyzing & thinking over them, further after proper keeping of all loose papers etc. I along with my partners disclose Rs. 10,00,00,000/- as unaccounted income or investment of Ms. D.R. Construction for FY 2007-08 (Asst. Year 2008-09).This unaccounted is over & above the regular income of me & my partners for FY 2007-08 (Asst. Year 2008-09) which is brought by us in Ms. D.R. Construction in FY 2007-08 & the same has not been disclosed in the books of acco....
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....issue in detail and held that amount is taxable in the current Asst. Year. He referred to para 4.1 of CIT(A)'s order as under :- "4.1 The first ground of appeal is against the addition of Rs. 10 crores on account of income, which is admitted and disclosed as unaccounted income during the course of survey proceedings, not offered for taxation in the return of income. In so far as the disclosure of Rs. 10 crores made at the time of survey is concerned, the same has not been disputed by the appellant and the appellant has also not retracted from the statement of disclosure of Rs. 10 made by Shri Ravi Khandelwal, partner of the firm while giving his statement on oath u/s 131 of the Act, at the time of survey u/s 133A of the IT Act. Further, disclosure of unaccounted income of Rs. 10 cr. was made after Shri Khandelwal had verified the books of account and documents of the firm found during the course of survey, as also various entries found in the books of a/c at that time. The appellant has, however, not shown the disclosure amount as income in the return of income filed for the year under consideration on the ground that the above amount has been shown as advances in the books of a....
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.... was also not represented by any advances. The appellant has not retracted from the disclosure made during the course of survey to the extent of Rs. 10 crores. It means the appellant has no explanation to establish the source of Rs. 10 crores represented by unaccounted investment, stock and 'on money' made in cash for the purchase of land, and, it is because of this reason that the income from which the above amount has been paid or expended and has not been offered to tax either in earlier years or not recorded in the books of account in the year under consideration upto the date of survey, the same has, therefore, been offered for taxation as unaccounted income. The appellant has, in this regard also disregarded the proviso to section 69C of the Act which provides that "notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of the income." It is also relevant to note that the income offered by the appellant as unaccounted income during the course of survey is in the nature of 'deemed income'. The issue of head of deemed income u/s 69, 69....
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....whom such 'on money' was received the unaccounted expenditure cannot be set off or cannot be said to be explained from the alleged receipt of 'on money'. The assessee has stated that Rs. 10 crores is unaccounted expenditure and he is not able to corelate any item of the expenditure with the receipt of 'on money' then assessee should be taxed only on the basis of unaccounted expenditure which remained unexplained and, therefore, Rs. 10 crores should be taxed in Asst. Year 2008-09 only as undeclared expenditure. It is a trite law that if investment is unexplained it should be taxed u/s 69C. The assessee has declared unaccounted expenditure as his income and not receipt of on money as his income. Since unaccounted expenditure sought to be explained from unaccounted on money and such explanation is prima facie not satisfactory in the sense that there is no details as to from whom such on money was received, the source of unaccounted expenditure should be treated as not satisfactorily explained and thus covered by section 69C. (9) It is not believable as claimed by the assessee that he would have received on money from 130 persons. Assessee is only trying to give twist to the case an....
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....eipt of 'on money'. Therefore, such expenditure is explained from the source which is "on money". Thus it cannot be taxed u/s 69C. The onus is on the Revenue that "on money" so received is taxable in Asst. Year 2008-09. Further revenue can tax "on money" along with sale proceeds of the flats and cannot be taxed separately i.e. "on money" receipt in cash in Asst. Year 2008-09 on cash basis and cheque money received on booking of flats in Asst. Year 2009-10 and 2010-11. Since both relate to same item, both can be taxed together. Both will accrue as income simultaneously in the mercantile system of accounting. Accounting AS-7 is applicable in case of builder but is not applicable in the case of contractor. Assessee is not a contractor but he is a builder and, therefore, his income can only be taxed on project completion method, when both income and expenditure can be considered together. Even though partner of the assessee firm has stated that it is his income for Asst. Year 2008-09 but he is talking in terms of receipt and he is not expected to understand it in legal sense. If assessee has right to revise a return and then assessee has also a right to revise his statement wrongly giv....
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....cognized on mercantile basis as and when flats are sold. The auditors have given a certificate as to how different flats are sold as under :- Sl.No Particulars 31.03.2010 15.03.2011 Total 1 No. of residential units sold 141 53 194 No. of shops sold 8 2 10 Total units sold 149 55 204 2 Area sold (sq.ft.) 129879 56487 186366 Total saleable area 310204 sq.ft 3 Sales consideration as per document (Rs.) 89485405 36525340 126010745 4 Proportionate booking advance out of disclosure of Rs. 10 crores (Rs.) 41868899 1,82,09,630 6,00,78,529 5 Total sales 131354304 54734970 186089274 Further we also notice that even though Revenue has heavily relied upon the statement of Shri Ravi Khandelwal but documents which would have reflected expenditure or receipt of 'on money' and which is claimed to be the basis for disclosure is not provided to us. Even the assessee has alleged that copy of such document is not provided to him. Therefore, it is not proved that any statement given by the assessee is supported by any material....
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....n be taxed is only the 'on money' as income not expenditure/investment under section 69C. Therefore, the relevant part of the argument of ld. DR that provision of section 69C should be invokved and expenditure/investment should be taxed as deemed income rejecting the other part of the statement regarding receipt of 'on money' is not acceptable and hence rejected. 14. Once what is to be taxed is 'on money' then it has to be examined when can it be taxed. Whether it can be taxed in Asst. Year 2008-09 on the basis of statement of Shri Ravi Khandelwal alone? In our considered view the statement that on money is income is a generic form of saying receipt as income and not in the sense of true interpretation of the term 'income' as per I.T. Act. 'On money' as such cannot be taxed alone unless it is proved that all the expenditure incurred on the project was recorded in the books of account and 'on money' component was over and above the receipts recorded in the books. No such evidence has been furnished. To the contrary it is undisputed position that out of this on money assessee has incurred various expenditure/investment. Therefore, 'on money' as such and as a whole cannot be taxed ....
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....g all fall in the FY 2006-07 and 2007-08. But as per certificate of the auditor whose contents are referred to above, assessee has sold total 149 units in FY 2009-10 and 55 units in FY 2010-11 upto 15.03.2011. It has shown to have adjusted a sum of Rs. 4,18,68,899/- out of Rs. 10 crores against sale of 149 flats/shops and of Rs. 1,82,09,630/- against sale of 55 flats/shops. The revenue is accordingly recognized only when flats/shops are sold and, therefore, both cheque portion/cash portion being the 'on money' would accrue to the assessee in the year when flats/shops are sold. Therefore, in no way sum of Rs. 10 crores as a whole can be taxed in Asst. Year 2008-09 on the basis of expenditure as deemed income u/s 69C. 16. Now we discuss certain authorities referred to by the parties. (1) The ld. DR has relied on the decision of Hon. Punjab & Haryana High Court in the case of National Legguard Works vs. CIT(A) & Anr. (2007) 288 ITR 18 (P& H). In this case income was surrendered during the course of survey following the detection of unexplained stock. Assessee sought to treat such income as income from exports and claimed deduction u/s 80 HHC. On the basis of this judgment ld. DR....
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...., question of invoking the ratio of this decision would not arise. (6) DCIT vs. Radhe Developers India Ltd.(Guj) in Tax Appeal No.171 of 1999. In this case applicability of ration of the decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan (supra) was considered. We have already held above that as provisions of section 69C are not applicable therefore, the ratio of this decision cannot be considered. (7) CIT vs. Ashaland Corporation (1982) 133 ITR 55 (Guj). In this judgment Hon. Gujarat High Court has held that income accrues on sale of land and arises in the year in which the title in the property is transferred and not in the year in which assessee received part of consideration and earnest money. Business of that assessee was to purchase and sale of land. The transaction of sale of land becomes complete only on possessing of title which takes place only when registered deed is executed. Some receipt of earnest money and advance receipt of money towards transaction would not by itself partake the character of taxable income as the registered sale deed was executed only in the subsequent year. In this regard we refer to following head notes from that ju....
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....time. However, after insertion of section 53A in Transfer of Property Act and clause (v) in section 2(47) the position of law has changed and capital gains would accrue on payment of full consideration and handing over of the possession. In Meccane Industries Ltd. vs. CIT (2002) 254 ITR 175 (Mad) Hon. Madras High Court held that capital gain would accrue in the year in which sale deed was executed. Hon. Andhra Pradesh High Court in CIT vs. Nawab Mahmood Jung Bahadur (1988) 172 ITR 592 held that capital gain would arise on transfer of asset liable to be taxed for the year in which transfer took place. Hon. Gujarat High Court in CIT vs. Mormasji Mancharji Vaid (2001) 250 ITR 542 (Guj) held that transfer of immovable property is effected on the date of execution of transfer deed and registration of transfer deed is effected from the date of execution. From these authorities it follows that there should be an immovable property in existence and transfer deed is executed which is later registered. Thus capital gain would accrue or arise only when transfer deed is executed. In the present case assessee is dealing in several immovable property i.e. flats and shops which he has constructed....
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....arry the character of advance only and a liability in the books of the assessee. Merely because such receipt is not declared or recorded in the books of account will not change the character which has to be decided in the light of the purpose for which it is given. Further such receipt (on money in the present case) cannot be dissected from other part of receipt through banking channels as both are integral part of sale consideration. If the amount given by cheque carries the character as an advance against sale consideration then 'on money' in cash will also carry the same character. Both types of receipts i.e. receipt through cheques and receipt through cash as 'on money' will arise as income to the assessee as soon as transfer of immovable property is executed and not before, or possession thereof is handed over and for this it is necessary that such immovable property should be in existence. Therefore, we are of the considered that 'on money' received by the assessee did not have the character of income but was only an advance like the one received through cheque. Both will become part of the sale consideration to the assessee simultaneously on either handing over the possessio....