TaxTMI 
TaxTMI 
2023 (12) TMI 1505
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....unt of on-money. 3. The necessary facts are that the assessee, a public company, is engaged in the business of real estate construction and deriving income from house property. The assessee company, in July 2012 launched a project of residential apartments namely "Aman Heights" which came to be completed in April 2015 and the BU permission was received in 2015. The assessee company was subject to search proceeding under section 132 of the Act dated 20th September 2016 and consequence to which certain materials were found establishing that the assessee has received on-money on sale of units of "Aman Height". 3.1 The assessee also admitted that it has received on money of Rs. 7.51 crores out of which the sum of Rs. 7 crores pertain to year under consideration (A.Y. 2015-16) and the remaining amount of Rs. 51 Lakh pertain to AY 2016-17. The assessee accordingly offered income on such on money @ 15% which came at Rs. 1.05 crores for the year under consideration. 3.2 However, the AO during the assessment proceedings observed certain facts which are detailed as under: i. The assessee in the books of account have shown to have sold 17 flats during the A.Y. 2015-16 to A.Y....
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.... vii. There were 2 flats sold by the assessee company to the promoters Shri Prakash Parekh and Smt. Madhu Parekh at a price of Rs. 50,000/- per square yard. Since the flats were sold to the promoters, these flats must have been sold without the element of profit. The AO was of the view that the cost per flat to the assessee should be on an average of Rs. 50,000/- per square yard. viii. There were 2 flats bearing flats nos. 91 and 102 booked as on 11th August 2017 and 9th February 2018 which assessee itself has shown to have sold at a price of Rs. 60000/- per square yards. 3.3. In view of the above facts, the AO believed that the average sale price of the flats which have been booked before 6th November 2014 (date of email referred above) should be Rs.57,106/- and flats booked after the email date should be at Rs. 67000 per square yard. However, the AO, with respect to the sale of flats, to the promoters has taken the sale price only Rs. 50,000 for the reason that the assessee would not have charged any on money from its own directors. Likewise, the AO also found that there were 3 flats booked in the year 2011 at the inception of the project, and therefore, the AO opined....
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....yard for flats booked after 6th November 2014 based on email cannot be adopted as the basis for calculating on money. It is for the reason that the email written by Shri Prakash Parekh is very vouge. As per the learned CIT(A), the proposed rate as directed in email is not proof that assessee realized such price on actual sale. Thus, the learned CIT(A) denied making any reference to the email brought on record by the AO. 6. Nevertheless, the learned CIT(A) found the rate accepted by the director Shri Sanjay Salecha in the statement furnished 132(4) of the Act is more reliable and effective. As per the statement of the director, the rate was coming Rs. 52,000 per square yard. The learned CIT(A) was also of the view that the 3 flats were booked much earlier i.e. in the year 2011, therefore, the sale price of such flats should be taken at Rs. 42,000/- per square yards after giving approximate discount @ 20% on Rs. 52000/-. Likewise, the two flats booked as on 11th August 2017 and 9th February 2018, the price of such flats sale should be taken at 62000 per square yard (assessee shown rate at Rs. 60000/-) after making an approximate upward adjustment of 20% on the value of Rs. 52,000/....
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....pute to the fact that the assessee was in receipt of on-money on the sale of flats. But the quantum of the on-money received by the assessee on flats is one of the disputes before us. As per the AO, the on-money received by the assessee in the year under consideration stands at Rs. 9,80,17,850/- (over all Rs. 12,47,17,850/-) whereas as per the learned CIT(A), the same stand at Rs. 7 crores in the year in dispute (over all Rs. 8.39 crores). The basis adopted by the AO was based on the email dated 6th November 2014 where the proposed rate per square yard was quoted at Rs.67000/- per square yard and the rate entered into the agreement dated 1st August 2014 between the assessee and M/s Ardor International Pvt Ltd where price was agreed at Rs. 57,106/- per square yard. As regards the basis adopted by the AO, we note that the rate recorded in the email cannot be adopted because it was the rate proposed by the assessee which cannot be treated as the actual sale price. Likewise, the rate entered between the assessee and M/s Ardor International Pvt Ltd at Rs. 57,106/- was not based under the normal business circumstances. As a there was the transaction between the parties for the purchase o....
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.... only the element of income. However, in the cases where a portion of sale received outside books, the possibility of having expenses incurred against the sale outside the books cannot be ruled out. 11.3 Before parting, we find it pertinent to make the analysis about the rate of profit. In the year under dispute, the assessee has shown gross revenue from operation at Rs. 15,58,21,350/- and after claiming direct and indirect expenses shown net loss at Rs. 99,98,116/- only. If the on money of Rs. 7 crores are added to the revenue from operation then the revised revenue from operation will be at Rs. 22,58,21,350. Further, assuming no expense incurred outside the books and on-money only represents a profit element, the net profit of the assessee shall be Rs. 6,00,01,884/- only. In such a situation, the NP ratio comes at 26.5% of the gross turnover. However, in the real estate development industry, the NP ratio at the rate of 25% is considered unreasonably high. Therefore, we are not inclined to uphold the finding of the AO, that the on-money represents only an element of income. As such, in such facts and circumstances some element of guess work is required to be taken into consider....
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.... corroborative evidence as regards unaccounted expenses, the Ld. CIT(A) has grossly erred in allowing assessee the benefit of 80% expenses and thereby determining undisclosed income of assessee at 20% of on-money, for which there is no basis whatsoever. 5. On facts and in the circumstances of the case, the Ld. CIT(A) ought to have confirmed addition of entire on-money receipts as income of assessee. As assessee could in no way establish or explain as to how, where and how much were the unaccounted expenses made by it nor there were seized evidences to this effect. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not applying the provisions of the Act including Section 37, 4OA * (3) and Section 69C, while allowing deduction of expenditure. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that unaccounted expenses cannot be allowed as deduction against unaccounted receipts merely because they are not recorded in regular books of account, without reference to the provisions of the Act relating to computation of total income. 8. On the facts and i....
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....n certificate for all 22 flats has been received as on 26th May 2015. The AO found that out of 22 flats only 15 flats have sold till the year under consideration. Thus, the AO proposed to make addition on account of deemed rental income on annual lettable value for the remaining 7 flats in view of the judgment of Hon'ble Delhi High Court in the case of CIT vs. Ansal Housing Finance & Leasing Co. Ltd reported in 354 ITR 180. 17. However, the assessee submitted that the provisions of section 22 and 23 of the Act are not applicable to it as it is engaged in the business of construction of residential flats which were held for the purpose of sale and not for letting out. The newly inserted provision under section 23(5) of the Act, vide Finance Act 2017 is applicable from 1st April 2018 only therefore same cannot be applied to the year under consideration. The assessee also submitted the judgment of Hon'ble Delhi Court in CIT vs. Ansal Housing Finance & Leasing Co. Ltd has been challenged before Hon'ble supreme where SLP has been accepted. 18. However, the AO disagreed and held that the assessee failed to demonstrate how its facts are different than the facts in the case of M/s An....