TaxTMI 
TaxTMI 
2017 (5) TMI 1741
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.... facility of reference, we are taking up the fact mainly from this assessment year. In case we find any variation in the facts, then we will take those facts in those years. 4. Grounds of the appeal raised by the Revenue in the Asstt.Year 2008-09 read as under: "1) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 5,08,84,180/- out of total addition of Rs. 5,94,14,500/- made by the Assessing Officer on account of not showing "on-money" receipt from sale of flat. 2) The Ld.CIT(A) has erred in law and on facts in holding unilaterally that the on money of Rs. 61,00,000/- represented cancellation and therefore cannot be taken as part of the "on-money" earned by the assessee without giving the Assessing Officer an opportunity in this respect. 3) The Ld.CIT(A) has erred in law and on facts in applying the rate of 16% to determine the unaccounted profit on the on-money ignoring that the assessee having declared a profit of Rs. 15 crore on-on-money of Rs. 36 crore in the course of survey thereby admitting his profit margin at 42%. 4) The Ld.CIT(A) while estimating the unaccounted profits erred in not applying the provisions of Section 40A(3) of the Act in....
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.... Total Rs. 15,00,00,000 Notes:- 1. This search was conducted on 18.01.2006 and Assessee made declaration Rs. 1.86 Crores. This declaration was reflected in return of Income filed after date of search. 2. Survey was conducted on 06.03.2010 and declaration of 15 Crores was made for various Years. 3. As returns of Income were already filed for A.Y.2007-2008 to A.Y.2009-2010, no declaration could be made in the return of Income but addition confirmed by CIT (A) accepted. 4. However the declaration was made in the return of Income for A.Y.2010-2011 &0nwards. 5. Assesses claimed telescoping of Rs. 1.86 Cores declared at the time of search relevant to A.Y.2006-2007. 6. Revenue has filed the appeals before Hon'ble Tribunal for the A.Y.2006-2007 to 2009-2010,against the order of CIT (A) which are Pending. 7. The assessing officer taxed 100% on money for all years except for A.Y. 2008-09 on cash basis while for A.Y. 2008-09 AO taxed on accrual basis. However, the learned CIT(A) taxed net profit against on money on accrual basis for all the years." 7. Referring back to the assessment order, it is being observed that notice under section 143(2) of the Act was issued on 26....
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....ted by the A.O. Further, it is seen that during the course of survey action, various incriminating evidences of not only unaccounted receipts i.e. on-money has been found but notings of even unaccounted expenditure incurred therefrom have been found and impounded. These details are available in Annexure B11and B-19 and the Id counsel for the appellant has filed some details of unaccounted expenditure. After preliminary verification of the impounded material containing incomplete detail of unaccounted receipts as also unaccounted expenditure, Shri Murarilal Agarwal director of the appellant company, disclosed a net unaccounted income of Rs. 15 crores for the entire group, categorically stating that no expenditure is left to be incurred from the net unaccounted income of Rs. 15 crores and also stated to revise the returns of the earlier years filed prior to the date of survey i.e. 06-01-2010 by offering the proportionate disclosed income attributable to that year. However, the return of income for the year under consideration i.e. A.Y. 2008-09 was not revised and the disclosure attributable for the year under consideration, was not offered for tax. During the course of assessment....
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....Rs. 32 lacs, Rs. 60 lacs and Rs. 18 lacs. Whatever cash payment is noted in the said book has not been recorded in the regular books whereas against cheque payment the word (P) has been written which means "Pakka" i.e. the said payment has been recorded in the regular books." From the aforesaid statement it is apparent that during the course of survey action, evidences of both unaccounted income as also evidences of unaccounted expenditure incurred therefrom have been found and impounded. Further, on going through the reply to Question No. 7 of the statement recorded during survey action, it can be seen that after considering all the impounded materials, Shri Murarilal Agarwal has made a disclosure of net unaccounted income of Rs. 15 crores by deducting all unaccounted expenditure from the unaccounted receipts and the relevant extract of the same is reproduced herein below: Relevant Extract of reply to Question No. 7 given by Shri Murarilal Agarwal in his statement recorded during the course of Survey "After considering the papers impounded from the site office, Platinum Building office, the statements recorded of my sons as also my statement herein before - I admit that ....
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.... such incomplete evidences and in such cases, it is a well established law that the entire undisclosed sales could not be added as income of the assessee but the addition could be made only to the extent of estimated profits embedded in such unaccounted sales for which a comparable net profit rate needs to be adopted. Even in a best judgement assessment assessee cannot be saddled with unjustifiable tax liability and an appellate authority can certainly set right injustice caused to the assessee. The aforesaid view of bringing to tax the net profit is duly supported by the following decisions of the jurisdictional Tribunal and High Court, as also various; other courts, as is discussed herein below. In the case of Kishor Mohanlal Telwala vs. ACIT (1999) 64 TTJ (Ahd) 543 the Ahmedabad Bench of the ITAT has held that what can be taxed is undisclosed income and not undisclosed receipt and the AO was not justified in making addition u/s. 158BC of the total undisclosed receipt on account of "on-money" admittedly charged by the assessee without giving deduction for unaccounted .payments shown to be have been made by the assessee. Further, in the case of Abhishek Corporation V. DCIT" ....
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....he year under consideration and therefore, I hold that the income in this regard needs to be computed by applying a comparable rate of net profit on the onmoney received by the appellant on 3 flats sold during the year under consideration. Now as regards the second issue of applicability of Section 69C to the facts of the present case, I am of the opinion that Section 69C can be invoked only when the appellant has incurred any expenditure for which he has no explanation regarding its source or the explanation offered by the appellant is not satisfactory in the opinion of the AO. However, in the present case, the impounded material contains the detail of unaccounted sales receipts i.e. on-money and unaccounted expenditure incurred out of the said on-money and thus, the source of unaccounted expenditure gets satisfactorily explained as being the on-money and hence, Section 69C is not at all applicable. Further, the proviso to Section 69C states that when any unexplained expenditure is deemed to be the income of the assessee, then the said unexplained expenditure shall not be allowed as a deduction and in the present case, unexplained expenditure has not been deemed to be the inco....
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....#39;onmoney' and incurred any unaccounted expenditure. However, while making alternative contention it has also contended that it has not maintained any record of unaccounted transactions and therefore it is not in a position to give the details of the unaccounted expenses. It has also cited several decisions of I TAT in respect of estimation of net profit on the 'on-money' received. Some of them have also been confirmed by the jurisdictional High Court. In view of the facts and circumstances of the case wherein neither the complete records have been maintained by the assessee nor the seized documents enable proper estimation of the unaccounted expenses of the assessee, the estimation of net profit based on similar cases appears to be best method of determining the true income of the assessee out of receipt of 'on-money'. Following net profit rates on 'on-money' have been upheld in the following judicial decisions:- No. Details of the case % of Net Profit Remarks 1. Naresh B. Agarwal (HUF) & Magatulal Harlalka (HUF) -Gujarat High Court order dated 3/5/00 15% Construction of commercial complex. Reference by the Department against the order o....
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....n Central Circle-1, Surat estimate Net profit at 20% for commercial project and 15% on the Residential project. 3. In the case of M/s. Jagdamba Corporation (Block period 1990-91 to 1999-2000), assessed in the same charge i.e. in Central Circle-1, Surat, estimate Net profit at 15% on Residential project. 4. In the case of M/s. Devi Corporation (Block period 1990-91 to 1999-2000), assessed in the same charge i.e. in Central Circle-1, Surat, estimate Net profit at 15% on residential project. 5. In the earlier search assessment of Manhar Kakadia group only, the assessment order were finalized u/s. 153A r.w.s. 143(3) and estimated the net profit at 12.5%. 6. In the case of search assessments of Aswani group, the assessment orders were finalized u/s. 153A estimating the profit @ 14.28%. The same was reduced to 12% by CIT(A). It can be seen from the above table that 15% is the normal rate adopted in the case of residential projects while 20% is the rate adopted in the case of commercial period, specially during the period from April 2003 to March 2008, there ,has been boom in property market because of following factors - ........... ........... ........... .........
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....ustified in making addition of the entire on-money of Rs. 5,94,14,500/- which infact is Rs. 5,33,14,500/- in respect of sale of 3 flats of 'Platinum Apartment' and accordingly, I hereby direct the A.O. to compute the income in respect of sale of 3 flats of 'Platinum Apartment' by adopting a net profit rate @ 16%, in the following manner. Sr. No. Flat No. Price as per sale deed Actual Price as per seized material Difference (on-money) Actual as per loose paper Net Profit @ 16% 1 801 33,00,000 2,06,71,500 1,73,71,500 27,79,440 2 901 33,00,000- .2,06,71,500 1,73,71,500 27,79,440 3 701 33,00,000 2,18,71,500 1,85,71,500 29,71,440 Total 99,00,000 6,32,14,500 5,33,14,500 85,30,320 Accordingly, the addition of Rs. 5,08,84,180/- out of total addition of Rs. 5,94,14,500/- as made by the A.O. is deleted and balance addition of Rs. 85,30,320/- is sustained." 9. The ld.CIT-DR relied upon order of the AO. He contended that Shri Murarilal Agarwal admitted Rs. 15 crores as net profit, meaning thereby, expenditures were also debited by the assessee in the profit & loss which was disclosed to the department. The on-money receipts were unaccount....
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....wever, assessee saves substantial money as taxes etc. which are not paid on such 'on money'. Most of the expenditure are accounted for and is covered in the net profit applied on cheque amount. Considering the totality of the facts and circumstances of the case, we direct the AO to apply a net profit rate of 15% on the cash amount and treat the resultant figure as income of the assessee rather taxing entire sum of 'on money'. The AO will calculate the resultant addition for both the years. Thus both the appeals filed by the assessee are partly allowed." 11. We have duly considered rival contentions and gone through the record carefully. In the first ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs. 5,08,84,180/- out of total addition of Rs. 5,94,14,500/- made by the AO. A perusal of the ld.CIT(A)'s order would indicate that basically, the ld.CIT(A) has analysed these details with all possible angles. The ld.CIT(A) has observed that perusal of annexure B1-11 and annexure B1-19 found during the course of survey, total unaccounted on-money receipts was of Rs. 36.52 crores received from sale of flats. These details a....
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....has not been demonstrated before us, as to how the ld.CIT(A) has committed the mistake from taking correct figure in the impugned loose paper. We do not find any merit in ground no.2 also. 13. As far as ground no.3 and 6 are concerned, they are peripheral issues related to Ground no.1. In these grounds, grievance of the Revenue is that the ld.CIT(A) has erred in applying net profit rate at 16%. It should have been applied at the rate of 42%. We find that this rate has been applied by the ld.CIT(A) after taking into consideration comparable cases of eight assessees. Specific example has been given on page no.16 of the impugned order. Thus, in our opinion, the ld.CIT(A) has exercised his discretion after taking into consideration various other factors. 14. As far as ground no.4 is concerned, once income of the assessee has been estimated after rejection of the books of accounts, there cannot be other disallowance specifically under section 40A(2), 40A(3) etc. We do not find any error in the observation of the ld.CIT(A) in this regard. Therefore, this ground of appeal is also rejected. 15. Other grounds are general in nature which do not call for any specific adjudication. They are....
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....in excess of THE INCOME ASSESSED OR ACCEPTED covering the entire project period up to the date of survey for AY 2006-07/2007-08/2008-09/200910/2010-11." 22. So far as question no.1 is concerned, similar question was formulated in the Asstt.Year 2008-09 also, and we have extracted finding of the ld.CIT(A) which is verbatim same as well as details of unaccounted expenditure were found. As far as issue whether income has to be recognised on accrual basis, the case of the assessee was that it has been following mercantile system of accountancy, where income from construction activity would be offered after completion of projects. In other words, when the assessee hands over possessions of the flats or get sale deed registered, only then income embedded in on-money receipts would be taxed in the hands of the assessee. The ld.CIT(A) has accepted this stand of the assessee on the ground that in the Asstt.Year 2008-09, the AO himself has accepted this. In the Asstt.Year 2008-09 the AO has not rejected books of accounts. He computed profit from unaccounted business on the money attributable to the sale of flats during the year. Thus, in other words, according to the ld.CIT(A), the income o....
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....oney collected was not brought to tax on receipt basis in accordance with the method of accounting followed by the assessee. Considering the legal aspects of taxation, the submissions made by the appellant and the details of income offered with regard to the ON MONEY RECEIPTS of the year under consideration and the decision and findings given in AY 2008-09 by the AO as well as the CIT(A) and also decision and findings given in the CIT(A) Order of AY 2007-08 and 2009-10, I am of the view that the ONMONEY though received in a particular year will partake the character of the Income in the year of accrual as per the method of accounting followed by the appellant. iii) Now as regards the third issue of the applicability of section 68/69/69C to the facts of the present case, I am of the opinion that Section 69C can be invoked only when the appellant has incurred any expenditure for which he has no explanation regarding its source or the explanation offered by the appellant is not satisfactory in the opinion of the A.O. However, in the present case, the impounded material contains the detail of unaccounted sales receipts i.e. on-money and unaccounted expenditure incurred out of the sai....
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....; 5,00,000 61B Sanjay yarn 5,00,000 60B Ayush Bhai 4,76,000 57B Snehlata GK 5,00,000 48B Vishwakarma Sanghi 2,00,000 49 Sanjay Agarwal 1,00,000 TOTAL 4,83,51,682 INCOME ASSESSED / CONFIRMED by CIT(A) /RETURNED A YEAR INCOME CONFIRMED ASSESSED / by CIT(A)/ as per RoI 2007-08 39,72,502 2008-09 85,30,320 2009-10 3,59,17,152 2010-11 3,00,00,000 TOTAL 7,84,19,974 Considering the factual status and the interpretation of sec 69/69C and the available funds in the form of ON MONEY during the year as well as the overall Income vis a vis investment, there is no justification in again considering the amount of Rs. 51,80,000/- as unexplained Investment. Hence the addition is deleted." Further the Assessing Officer has considered an amount of Rs. 36,49,000/- (88,29,000 - 51,80,000) as addition u/s 68 being unexplained cash credit for which no details has been provided by the assessee. In this regard the appellant has submitted as under: "(a) At the outset sec 68 is applicable only when there is a CREDIT in the books of account and the assessee i....
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....f this on-money, assessee has incurred expenditure as well as investment. Such amounts have been calculated at Rs. 51,80,000/-. He only observed that if investment was found to be more than the on-money receipts, then investment will be added. The ld.AO treated on-money receipt of Rs. 88,29,000/- as net income and observed that out of these net income, Rs. 81,80,000/- was invested in profit making assets. 25. On appeal, the ld.CIT(A) has observed that receipts are there. Similarly, expenditure are there. Once the receipts are accounted, expenditure cannot be added. The source of expenditure is on-money receipts. Out of the on-money receipts, the income would be assessed in the year when the flats would be sold. Similarly, the ld.CIT(A) has observed that Rs. 36.49 lakhs cannot be considered as cash credit because the assessee has already explained that these are on-money receipts. The assessee has also identified flat numbers against which such amounts have been received. Details have been noticed by the ld.CIT(A) on page no.21 extracted (supra). Therefore, considering well reasoned finding of the ld.CIT(A) extracted (supra), we do not find any error in it. 26. Now we take appeal ....
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....try, we are of the view that the ld.CIT(A) has not entertained any additional evidence, rather reappreciated existing material available on the file of the AO. Thus, there is no force in both these grounds of appeal. They are rejected. 32. Ground nos.7 to 12 in the Asstt.Year 2007-08 and ground no.7 to 11 in the Asstt.Year 2009-10 are verbatim same. They are alternative plea taken by the Revenue. In these grounds, grievance of the Revenue is that in case income of the assessee embedded in on-money receipts is to be estimated, then this should be estimated at the rate of 42% and not at the rate of 16.25% as done by the ld.CIT(A). 33. We have considered identical issue in the Asstt.Year 2008-09. We find that the ld.CIT(A) has adopted rates after taking into consideration relevant material and comparable cases. The ld.CIT(A) made reference to eight comparable cases before adopting percentage of 16% required to be applied on on-money receipts. Similarly, thereafter, the ld.CIT(A) made reference to order of the ITAT in different cases. Thus, we are of the view that the ld.CIT(A) has appreciated the facts and circumstances in right perspective and has applied pragmatic rate of profit on....
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....OAN given in 2004 as is evident from the noting. This a RECEIPT considered as PAYMENT 6,80,000 48 Janak Mistry VAT Consultant- The receipt item of Rs. 17,963/considered as 1,79,63,000/-. Being RECEIPT this is to be reduced. 17,963 47B Dharmin Bhai- In this case PAYMENT is only made of Rs. 73,50,000/(45+28.50) Rest of the amount of Rs. 1,03,70,0007- was not paid but adjusted against sale of FLAT 1,03,70,000 1,10,67,963 BALANCE 5,70,14,625 NET PAYMENT of INVESTMENT / EXPENDITURE 5,70,14,625 From the above table the Id AR submitted that the correct figure of investment + expenditure, works out to Rs. 5,70,14,625/-. The above chart is prepared from the items and entries picked up from the impounded material annexure B1-19. Each item of difference is verified and discussed with reference to the impounded annexure as under: Page No 48 (Rs. 1,79,63,000 + Rs. 4,00,000): The Assessing Officer had considered this item of entry as investment at Rs. 1,79,63,000/- (Receipt side Rs. 17,963.00 considered as 1,79,63,000/-) + Payment side - Rs. 1.00 (23/02/07) + Rs. 3.00 (17/03/07) = Rs. 1,83,63,000/- in the Table No 3 on....
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....O has worked out Rs. 1,38,53,000/-. Thus a difference of Rs. 34,83,000/- has been wrongly considered as unexplained investment by the Assessing Officer. I have gone through the impounded annexure and on verification found the facts stated by the appellant are found to be correct. Page No 49 (Rs. 2,51,98,625/-): The Assessing Officer had considered this item of entry as investment at Rs. 2,51,98,625/-. The appellant submitted that this was a Land Purchased for RADHAPURAM VARELI project of the appellant. This was expenditure of the project and not an investment as held by the Assessing Officer. The total payment during the year works out to Rs. 2,44,98,625/- as against Rs. 2,51,98,625/- considered by AO. There seems to be a total mistake of Rs. 7,00,000/-. The amounts from the impounded annexure were verified and the mistake in total was apparent. Page No 46 (Rs. 77,75,000/-): The Assessing Officer had considered this item of entry as investment at Rs. 77,75,000/-. However the total investment is Rs. 79,45,000/- and an amount of Rs. 1,70,000/- of 04/04/206 is mistakenly not considered into totals. This will increase the investment. The amounts from the impounded annexure was verifi....
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....h financial year. In the present case all the investments made are out of the ON-MONEY RECEIPTS and therefore the nature and the source of the investments are satisfactorily explained. The investments/ expenditure made are not in excess of the receipts available with the assessee which is clear from the following chart submitted by the appellant and verified with the relevant impounded annexure as mentioned in the next paragraph. RECEIPTS PAYMENTS Particulars Amount Rs Particulars Amount Rs LOAN RECEIPTS-Offered forTAX 1,10,004 Investment & Expenditure 3,92,89,163 Sale of Shops & Land 3,48,60,480 BALANCING FIGURE AVAILABLE for OTHER EXPENSES 9,90,84,307 Sale of YARN 13,45,000 SUB TOTAL 4,72,09,480 ON MONEY from PROJECTS as per Table 2 of A Order 9,11,63,930 TOTAL 13,83,73,470 TOTAL 13,83,73,470 v) As regards the fifth issue regarding mistakes claimed be the appellant in the Investment chart prepared by the Assessing Officer, the appellant had submitted a chart depicting the mistakes and wrong consideration of items: Particulars Amount (Rs) Amount(Rs) TOTAL of the TABLE No 1 & 3 on Page No 7-11 and 36-38 of....
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....orrect. The items, which are shown as RECEIPTS in the impounded annexure, had been considered as PAYMENTS is the contention of the appellant with regard to the following items of entries. a) GURUDUTTii (LOAN a/c) Rs. 40,00,000/- marked page serial no 43 (Page No 100 of PB): There is only one entry of Rs. 40 00 of 24/12/08 on the receipt side of the note book. The contention of the appellant is therefore correct. b) Girish bhai Rs. 44,21,700/- marked as page serial no 45 (Page No 105 of PB): There is one entry on receipt side of 11 00 and three entries on the payment side being 23 00 (27/08/08), 7 00 (13/09/08) and 3 21700 (Int paid upto 31.12.08). The total of Receipt side + payment site works out to 44,21,700/-. Thus Rs. 11 lacs is part of receipt side. The contention of the appellant is correct. c) Pramod babu Rs. 44,72,000/- marked serial no 45B (Page No 104 of PB): There are three entries on receipt side of 40 (5/08/08) + 64 (26/08/08) + 1 73 (Int 6.10.07 to 23/6/08) making a total of Rs. 2.77.000/- and 6 entries on PAYMENT side 20 00 (23/06/08) + 300 (25/06/08) + 10 00 (17/07/08) + 337 (22/08/08) + 358 (26/08/08) + 200(29/08/08) = making a total of Rs. 41.95.000/-. The tot....