TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 940
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.... No.2206/Del/2023 for the Assessment Year 2013-14 for adjudication purpose. The assessee has raised following grounds of appeal:- 1. "That on the facts and circumstances of the case, Assessment Order passed u/s 153A(1)(b) of the Act by the Deputy Commissioner of Income Tax, Central Circle - 1, Gurgaon on 31.05.2023 for the assessment year 2013-14, is bad in law and liable to be quashed as no search action u/s 132 of the Act was carried out at the premises of the appellant company and no Panchnama was served to the appellant company. 2. Without prejudice to the Ground of Appeal No. 1, the learned CIT(A) has erred both on facts & in law in sustaining addition to the extent of Rs. 50,38,500/- made by Ld. AO by disregarding the contention of the appellant that such addition was made on the basis of seized documents found during the course of search action u/s 132 of the Act carried out at the premises of third person and hence, outside the scope of proceedings u/s 153A of the Act. 3. That on the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in sustaining addition to the extent of Rs. 50,38,500/- made on the basis of ....
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....25. 6.1 The assessee has explained that receipts and payments as noted in para 4.1 of the assessment order have been treated as undisclosed income by the AO arising from entries as recorded in the diary from the residential premises of RKY. 6.2 In the earlier AYs 2011-12 & 2012-13 also, similar additions were made by the AO. The Assessee primarily contends that most of the transactions relate to Golf View-I Project which is developed by Antariksh Developers. The transactions/entries recorded in the diary includes both projects i.e Golf View I as well as Golf View II and both projects are developed by different promoters. While Golf view I project is being developed by Antariksh Developers, Golf View project II is being developed by Colourful Estate i.e. assessee herein. The entries relatable to the assessee has already been accounted for prior to search and subjected to assessment. To support this claim, the assessee referred to Annexure 8-11 seized from the premises of the assessee which is in the nature of receipt of INR 5 Lakhs from certain parties which are clearly shown to be relatable to 'Golf View-I' and thereby that the aforesaid transaction relates to Antariksh Devel....
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....itions cannot be sustained on the strength of suspicion or surmises. The factual position being similar, we do not wish to reiterate the process of reasoning adopted in earlier years. In consonance with the view expressed earlier year AY 2011-12, the additions made is held to be without legal foundation and thus cannot be countenanced in law. The additions sustained by the CIT(A) thus deserves to be cancelled and set aside. The AO is directed to reverse the impugned additions based on such entries. The Assessee thus gets relief on this score. 7. We now advert the other substantive challenge namely ; estimated additions on account of accrual of income under PoCM from real estate project undertaken by the assessee. The AO computed net profit deemed to have accrued from ongoing real estate project under development by applying PoCM for AYs 2011-12, 2012-13, 2013-14 & 2014-15. For quantification of estimated profits accrued for AY 2013-14 in question, the AO presumed 20% of advance received from potential customers against the sale of flats etc. as a reasonable estimate similar AYs 2011-12 & 2012-13. Based on advance received from customers, the AO computed addition of INR 44,....
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....acts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. 8.2.2. It may be noted that the above all the conditions are threshold limits to be eligible to recognize revenue. In the said case, the appellant company has not achieved the level of 25% of construction and development cost & also not received the environment clearance certificate and other conditions of POCM is also not fulfilled, that is why the appellant company has not recognized the revenue during the financial years relevant to AYs 2011-12 & 2012-13. 8.2.3 However, the learned assessing officer has made ad-hoc addition on the estimation basis by taking 20% of advance received by the appellant without judicial application of mind that the revenue should be recognized only when the desired level of above-mentioned events are completed as per AS-9 and guidance note issued by the ICAI for the revenue recognition. When the desired level of event is not completed to enable revenue recognition then impugned ad-hoc addition has no base and liable to be deleted. Merely because the revenue was not recognized by applying the percentage completion....
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....2013-14 and onwards. The learned assessing officer could not point out any error and passed the impugned assessment order ignoring the facts of the case and mentioned in the impugned order that the accounting standards as prescribed under section 145(3) of the Income Tax Act, 1961 has not followed by the appellant without pointing out the discrepancy. So, it is bad in law and liable to be quashed. 8.2.6. The assessee company has duly recognized the revenue as per guidance note on real estate issued by ICAI and AS-9 from AY 2013-14 and onwards. The detail of same is as under AY % of completion/ recognition Revenue recognized Total Revenue recognized 2013-14 51.64 1,35,55,22,090/- 1,35,55,22,090/- 2014-15 59.79 27,43,56,548/- 1,62,98,78,638/- 2015-16 69.55 54,59,54,799/- 2,17,58,33,437/- 2016-17 78.39 73,09,32,912/- 2,90,67,66,349/- 2017-18 88.82 64,96,95,687/- 3,55,64,62,036/- 2018-19 86.96 15,10,57,323/- 3,70,75,19,359/- 2019-20 87.73 41,41,62,265/- 4,12,16,81,624/- 2020-21 91.72 45,85,60,712/- 4,58,02,42,336/- 2021-22 94.76 20,01,09,651/- 4,78,03,51,987/- ....
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....pany has received the payment of Rs. 21,98,11,373/- during the year under consideration and returned a NIL income. Further the assessee company has not recognized any revenue as per accounting Standard (AS-9). Accordingly, notice u/s 143(2) along with questionnaire dated 08.01.2016 was issued to the assessee to explain the basis for accrual on income in respect of housing projects executed by the assessee at Gurgaon, Noida and Haridwar. Vide this questionnaire dated 08.01.2016, as per point No. (e), the assessee was specifically asked to furnish the elaborated notes on the policy regarding recognition of revenue in the books. The assessee was also asked to furnish the project wise and year wise revenue recognized into its book of accounts. In response to this, the assessee company submitted its reply stating that "that the company has neither recognized any revenue nor expenditure of its real estate project undertaken in absence of percentage of completion of its projects to a significant level as management considered during the assessment year. However, the company has recognized the revenue for its project on percentage of completion basis in the subsequent years where ....
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....ounting Standard (AS-9): Accordingly, notice u/s 143(2) along with questionnaire dated 08.01.2016 was issued to the assessee to explain the basis for accrual on income in respect of housing projects executed by the assessee at Gurgaon, Noida and Haridwar. Vide this questionnaire dated 08.01.2016, as per point No. (e), the assessee was specifically asked to furnish the elaborated notes on the policy regarding recognition of revenue in the books. The assessee was also asked to furnish the project wise and year wise revenue recognized into its book of accounts. In response to this, the assessee company submitted its reply stating that "that the company has neither recognized any revenue nor expenditure of its real estate project undertaken in absence of percentage of completion of its projects to a significant level as management considered during the assessment year. However. the company has recognized the revenue for its project on percentage of completion basis in the subsequent years where project undertaken completed to a significant level as prescribed in the guidance note ICAI (Guidance note on revenue recognition in case of real estate transactions. " 4.4 Fur....
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....spect of housing projects executed by the assessee. at Gurgaon, Noida and Haridwar. Vide this questionnaire dated 08.01.2016, as per point No. (c), the assesses was specifically asked to furnish the elaborated notes on the policy regarding recognition of revenue in the books. The assessee was also asked to furnish the project wise and year wise revenue recognized into its book of accounts. In response to this, the assessee company submitted its reply stating that "that the company has neither, recognized any revenue nor expenditure of its real estate project undertaken in absence of percentage of completion of its projects to a significant level as management considered during the assessment year. However. the company has recognized the revenue for its project on percentage of completion basis In the subsequent years where project undertaken completed to a significant level as prescribed in the guidance note ICAI (Guidance note on revenue recognition In case of real estate transactions." 5.4 Further, during the course of assessment proceedings, the assessee vide show cause notice dated 14.03.2016 was specifically asked to furnish the requisite documents/ informati....
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....of revenue in the books. The assessee was also asked to furnish the project wise and year wise revenue recognized into its book of accounts, In response to this, the assessee company submitted its reply stating that "that the company has neither recognized any revenue nor expenditure of its real estate project undertaken in absence of percentage of completion of its projects to a significant level as management considered during the assessment year. However, the company has recognized the revenue for its project on percentage of completion basis in the subsequent years where project undertaken completed to a significant level as prescribed in the guidance note ICAI (Guidance note on revenue recognition in case of real estate transactions." 6.4 Further, during the course of assessment proceedings, the assessee vide show cause notice dated 14.03.2016 was specifically asked to furnish the requisite documents/ information for purpose of computing the income under POCM related to each assessment year under consideration along with certificate of Engineer, which discloses the percentage of completion of work. 8.2.9 In the re-joinder to the Remand Report, the assessee....
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.... the end of respective FYs. The Environmental Clearance Certificate which is critical for carrying on the construction was obtained by the assessee from the Directorate of Environment, Uttar Pradesh for Antariksh Developers, Golf View-II Project during the FY 2012-13 relevant to AY 2013-14. Prior to the environmental clearance, the assessee has incurred expenditure majorly on purchases of cement and steel bars which fact is demonstrable from the purchase bills. The labour work incurred prior to environmental clearance is very nominal and incurred to the extent essentially to the security of the project as per the norms of environmental authority. Hence, the assessee has done only those construction activities on the said project which was permitted prior to environmental clearance otherwise one of the reasons for not recognizing the Revenue in AYs 2011-12 & 2012-13. Some other parameters of the Guidance Notes were also not fulfilled. The assessee thus submitted that the AO has not taken the cognizance of the cost incurred and invoked the PoCM method entirely on whims and fancies without taking cognizance of the pre-requisites for applicability of PoCM method for Revenue recognition....
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....he assessee for not recognizing the Revenue for AY 2011-12 is acceptable. (b) As per the material available on record, environmental clearance certificate for the project was obtained during AY 2013-14 and therefore, no recognition of Revenue for AY 2012-13 cannot be faulted although expenditure incurred on construction of project was 30.57% which exceeded the threshold of 25%. The Ld.CIT(A) also observed that major construction cost towards purchase of cement and steel and no actual cost of construction has been carried in the project upto AY 2012-13. (c) From the record, it is found that for AYs 2013-14 & 2014-15, the assessee has recognized revenue of INR 135.55 crores and 27.43 crores in the audited P&L Account based on PoCM method. The AO in the Remand Report has not made any adverse comments in respect of claim of the assessee that Revenue has been recognized by the assessee for the said project based upon PoCM for the AYs 2013-14 & 2014-15. 11. The Ld.CIT(A) thus granted complete relief from the additions towards accrual of income under PoCM owing to inapplicability of AS-9 & Guidance Note in so far AYs 2011-12 & 2012-13 are concerned. The Ld.CIT(A) also....
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....2 45,85,60,712/- 4,58,02,42,336/- 2021-22 94.76 20,01,09,651/- 4,78,03,51,987/- 14.2. The Ld. Counsel for the assessee thus submits that the Revenue has been recognized based on PoCM for AYs 2013-14 & 2014-15 and also in the other subsequent AYs and thus there is no escapement of any revenue received from development project from taxability. The entire exercise is thus revenue neutral and no loss has been eventually suffered by the Revenue because of the recognized method under PoCM has been applied by the assessee. 14.3. It is further case of the assessee that the Ld.CIT(A) has rightly deleted the rectified addition of INR 17,56,87,260/- made by the AO based on estimation being 20% of advances received by the assessee on the ground that such estimation is not permissible and contrary to PoCM method. The Ld. CIT(A) has however having deleted the basis of additions made by the AO, independently enhanced the income by the assessee by INR 26,69,63,300/- for AY 2013-14. The Ld.CIT(A) has made such enhancement unilaterally without confronting the assessee on such revision of profitability determined by assessee under PoCM by issuing any show cause notice which is....
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....sessee in this regard and without communicating the basis for arriving at the said figure of enhancement to the assessee. The assessee was totally clueless on proposed enhancement in the course of first appellate proceedings. Such approach of the Ld.CIT(A) is contrary to statutory protocol as well as law codified in s.251(2) of the Act. It is trite that the enhancement of declared income, if any, can be considered and advanced only if an opportunity is given for that purpose as held in Gedore Tool P.Ltd.vs CIT [1999] 238 ITR 268 (Delhi). Similar view has been expressed by the Co-ordinate Benches in the decisions cited on behalf of the assessee. 15.2. Pertinently, the enhancement proceedings are intrinsically a serious exercise undertaken independently by the Ld.CIT(A). Hence for making any comments adverse to the assessee, it is bounden duty of the Ld.CIT(A) to follow due process of law before coming to his own conclusions on unverified facts and before making comments thereon. The Ld.CIT(A) is bound under the explicit provisions of s. 251(2) of the Act to confront the assessee with material evidence, if any, in his possession. The statutory obligations in the case of enhancemen....
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.... 55 Lakhs leading to net enhancement of INR 39,76,985/- in the light of alleged statement made under s. 132(4) of the Act. Such action has been taken without issuing any enhancement notice required in law under s. 251(2) of the Act. The impugned net enhancement of INR 39,76,985/- is thus unsustainable in law. 18. We find substantial merit in the plea of the assessee. The additions of INR 39,76,985/- based on so-called statement under s. 132(4) of the Act, is in the nature of enhancement for which there is no mention of issuance of any show cause notice to the effect. It is also trite that mere statement under s. 132(4) is not conclusive and only raises presumptions against the assessee. The assessee is not estopped from demonstrating the factual incorrectness in the statement recorded on facts. The assessee has provided working of Revenue recognition under PoCM which has not been faulted by the AO in the remand proceedings. Thus, the income offered by the assessee becomes sacrosanct and based on material available on record and cannot be ordinarily disturbed without plausible reasons. Furthermore, the identity of persons giving statement under s. 132(4) to this effect is not kno....