TaxTMI 
TaxTMI 
2022 (5) TMI 459
X X X X Extracts X X X X
X X X X Extracts X X X X
....ewani Group, including the assessee, on 09.09.2015. Pursuant to the said action, a notice under Section 153A of the Act was issued to the assessee on 29.08.2016. The assessee filed its return of income for the year under consideration on 17.10.2016 declaring a total income of Rs.80,25,440/-. During the course of search conducted at the premises of the assessee at Shoppers Plazza-3, CG Road, Opp. Municipal Market, Ahmedabad, certain documents were seized and identified as Annexure A-4 (Page No.74 to 82). The said documents contained the entries regarding the on-money received by the assessee on sale of flats from a project named 'Krishna Venue'. After considering the explanation offered by the assessee in respect of relevant entries found reflected in the relevant seized documents and taking into consideration the details and documents available on record, the Assessing Officer arrived at a conclusion that the on-money of Rs.3,03,50,000/- received by the assessee in cash pertaining to the sale of flats recognized in the year under consideration as well as the on-money of Rs.6,70,51,310/- received by the assessee as reflected in the relevant seized material pertaining to sale of flat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t year on cash basis without appreciating the fact that cheque component of above referred on money is not taxed in current year but were taxed in subsequent assessment years or sales were yet not recognized by appellant in books of account. Moreover, the AO himself has taxed the on money receipt for A.Y. 2014-15 & 2015-16 to the extent sale was registered in the years relevant to these assessment year. Thus, taxing of money receipt for the unsold units is contradictory of the AO's decision for A.Y. 2014-15 & 2015-16. Reliance is placed on decision of Hon'ble Ahmedabad ITAT in the case of Ms D.R. Construction V/s ITO (ITA No 2735/Ahd/2010) dated 08/04/2011 wherein it is held as under: ".....15. The next issue comes as to when the income out of such receipt would accrue to the assessee. In our considered view receipt of 'on money' is part and parcel of money received on sale of flats by cheque. The amount received by cheque before actually transferring the flats to the purchasers will be in the nature of advance and cannot be said to have accrued to the assessee. Assessee has incurred expenditure/investment in the project in various years but income to it will accru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ddition made by AO for Rs 6,70,51,310 is deleted as sales pertaining to such on money is not taxed in regular books of account in current assessment year which is accepted by AO in assessment order. The related grounds of appeal are partly allowed. The AO is advised to ensure that the on money receipt shall be taxed for the units sold in particular assessment year, so as the income of total on money is taxed." 5. As regards the third contention raised on behalf of the assessee before the learned CIT(A) that the on-money to the extent of Rs.3,03,50,000/- received on sale of flats during the year under consideration cannot be entirely treated as income and the same should be restricted to the net profit of such on-money representing sale value of the flats, the same was also accepted by the learned CIT(A) and the addition of Rs.3,03,50,000/- was restricted by him to Rs.60,70,000/- being 20% net profit embedded in the on money for the following reasons given in paragraph Nos. 5.12 and 5.13 of his impugned order:- "5.12 So far as alternate ground of appeal regarding taxing not entire on money but only profit embedded on such on money, it is observed that AO himself at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as undisclosed income of assessee - Held, Yes" (iii) Commissioner of Income -tax v. Samir Synthetics Mill [2010] 326 ITR 410 (GUJ.) "Where assessee could not even be able to reconcile production, sales and closing stock although specific opportunity was provided by Assessing Officer, addition was justified on account of suppression of sale consideration but only to the extent of profit." "'SUPREME COURT HAS DISMISSED SLP FILED BY DEPARTMENT." (iv) CIT versus Abhishek Corporation ITR No. 15 of 2003 where it is held that- "It can thus be seen that consistently, this court and some other courts have been following the principle that even upon detection of on-money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipt and not the entire receipts themselves. If that be the legal position what should be estimated as a reasonable profit out of such receipt, must be an element of estimation. 16. In view of the legal position that not the entire receipts but the profit element embedded in such receipt can be brought to tax, in our view no inferences called for in the decision of the tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture on account of purchases worth Rs. 10.61 crores out of total purchases of Rs. 14 crores was disallowed. The appellate authorities have taken a holistic and broader view and held that as the books of account had not been produced and were not regularly maintained, the book results should be rejected. It is agreed with the revenue that the assertion of the assessee that the books of account were stolen had a hidden motive and the assertion is rather unbelievable. The assessee, therefore, must suffer adverse consequences. The only question is whether the addition made by the appellate authorities is adequate or a higher addition would be justified. As far as total turnover is concerned, same cannot be disputed as the assessee was only doing development work for the Greater Noida Authority. The total turnover is also supported by the tax at source certificate. The quantum of turnover was not adversely commented upon by the Assessing Officer. In view of the aforesaid position, revenue was directed to ascertain the gross profit or net profit rates declared and accepted by the Assessing Officer in case of other contractors engaged in similar work. The Assessing Officer has not given a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Considering the finding of the authorities below, there was no merit in the case of the assessee with regard to the rejection of the books of account with the aid of section 145(2). The orders of the authorities below, to that extent, were to be confirmed. [Para 29] As regards the question as to whether net profit rate of 12.5 per cent applied by the Assessing Officer was justified in the matter, the assessee had shown the gross receipts of Rs. 26,74,885 and the net profit declared was at the rate of 0.48 per cent. Though it was case of the assessment year 1992-93, and the provisions of section 44AD were strictly inserted in the Act with effect from 1-4-1994, yet the same could be a guideline for the purpose of applying a particular net profit rate in the case of civil contractor even in earlier years. The assessee was also civil contractor engaged in construction work taken on contract and the gross receipts of the assessee were below Rs. 40 lakhs. Therefore, the net profit rate of 12.5 per cent applied by the authorities below in the case of the assessee was excessive and exorbitant. Accordingly, the application of net profit rate was to be modified from 12.5 per cent t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and income from such sales was recognized and assessed. This view taken by the learned CIT(A) is duly supported by the judicial pronouncements referred to and relied upon by him in his impugned order and keeping in view the same as well as all the relevant facts of the case, we find no justifiable reason to interfere with the impugned order of learned CIT(A) on this issue. 8. As regards the balance amount of on-money to the extent of Rs.3,03,50,000/- which was received by the assessee in respect of flats sold in the year under consideration, it is observed that this amount representing undisclosed sale proceeds of the flats sold in the year under consideration was entirely treated by the Assessing Officer as the income of the assessee without giving any deduction on account of corresponding expenditure incurred by the assessee. As rightly held by the learned CIT(A) by relying upon the various judicial pronouncements including the judgments of Hon'ble Gujarat High Court, the entire receipts or on-money representing undisclosed sales proceeds of the flats cannot be the income of the assessee and only the income embedded in such on-money can be taxed as the undisclosed income of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce did not depend on whether the assessee actually rented out with the intention of carrying on business, but on the mere factum of ownership. Decision of the Calcutta High Court, in Azimganj Estate (P) Ltd v CIT (ITA 242/2003, decided on 13-9-2011) is relied upon wherein under identical circumstances, when the builder assesse had vacant flats, which were let out, the Court held that the rental income was assessable not under the head of profits or income from business, but as property assessable under the head income from house property. Thus, as long as the assessee continued to be owner of the vacant flats, it had to be assessed under the head of income from house property; since there was no letting out, the basis of assessment had to be ALV, which was rational and scientific. In the present case, the assessee is engaged in building activities. The levy of income tax in the case of one holding house property is premised not on whether the assessee carries on business, as landlord, but on the ownership. The incidence of charge is because of the fact of ownership. In this case the intention of the assesse was to hold the properties till they were sold. The capacity of being an ow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing deemed rent." 11. The addition of Rs.87,40,000/- made by the Assessing Officer on account of deemed rent was challenged by the assessee before the learned CIT(A) and after considering the submissions made by the assessee as well as material available on record, the learned CIT(A) deleted the addition made by the Assessing Officer on account of deemed rent for the following reasons given in paragraph No.8.4 of his impugned order. "8.4 On careful consideration of entire facts, the disputed issue is as to whether ALV is required to be determined in case of builder when he has unsold units at the year end. The contention of the appellant regarding amendment in provisions of section 23(5) of the Act with effect from 1^st April 2018 in support of its claim is not found acceptable, as this provision is effective with effect from 1st April 2018 and the appellants case belongs to period prior to this date. Hence this contention is rejected. This issue has been decided in the following cases in details: It is observed that Hon'ble Mumbai ITAT in the case of ITO vs Arihant Estate Pvt Limited (ITA No 6037/Mum/2016) dated 27/06/2018 has held as under: "We h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and 'income from property' on one side, and 'any income from other sources'. The Tribunal, in our considered opinion, was absolutely unjustified in comparing the rental income with the dividend income on the shares or interest income on the deposits. Even otherwise, this question was not raised before the subordinate Tribunals and, all of sudden, the Tribunal started applying the analogy. 9. From the statement of the assessee, it would clearly appear that it was treating the property as 'stock-in-trade'. Not only this, it will also be clear from the records that, except for the ground floor, which has been let out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a 'stock-in-trade'," 9. Similarly the Coordinate Bench has considered similar issue as to whether the unsold property which is held as stock in trade by the assessee can be assessed under the head 'income from house property' by notionally computing the annual letting value from such property and the Coordinate Bench considering the decision of the Hon'ble Delhi High Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntal income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats. The flats not sold was its stock-in-trade and income arising on its sale is liable to be taxed as business income. Accordingly, we do not find any justification in the order of AO for estimating rental income from these vacant flats u/s.23 which is assessee's stock in trade as at the end of the year. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s.23 of the I.T. Act." 10. In the case on hand before us it is an undisputed fact that both assessees have treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head 'income from business'. Thus, respectfully following the above said decisions we hold that the unsold flats which are stock in trade when they were sold they are assessable under the head 'income from business' when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respec....