TaxTMI 
TaxTMI 
2026 (8) TMI 1633
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.... Assessing Officer on the basis of the survey statement and corroborative evidence, ignoring the fact that the survey proceedings revealed suppressed income and unaccounted cash transactions. " 3. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition for under valuation of sales under Section 43CA of the Income Tax Act, 1961, despite the fact that multiple flats were sold below the ready reckoner value, particularly to related parties, indicating possible receipt of unaccounted cash consideration". 4. "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in reducing the estimated profit rate from 15% to the lower amount declared by the assessee, without considering industry benchmarks and comparable cases, despite the AO's reasonable estimation based on prevailing real estate sector profit margins." 2. Briefly, the facts of the case are that a survey operation u/s. 133A of the Income Tax Act, 1961 ('the Act') was conducted at the assessee's premises on 09.11.2017, during which certain incriminating documents were found and impounded. It was observed by the Assessing Officer that the assessee has ....
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....proceedings coupled with the submissions made by the assessee from time to time. The discrepancies noticed in the books of accounts and the submissions made by the assessee are summarized hereunder: - "1. In the written submissions filed on 11.02.2021 and 01.03.2021, the assessee has made attempts to mislead that the survey was not on its entity and it was carried out on other concern M/s Aster Developers having identical partners. Then, it was made aware of the fact that authorization u/s 133A of the Act was drawn in the name of M/s Excel Developers and it was duly shown and served on one of the partners Mr Virendra Maneklal Vora and he signed on the Authorization. 2. Impounded records were provided to the AR of the assessee with a request to furnish page-wise explanation to each and every page. In response it has replied very casually like just mentioned that it is a ledger or it is payment detail so on and so forth which shows that the assessee firm has not furnished any explanation as to how the transactions mentioned on the impounded records are reflected in the regular books of accounts and what is the tax implication of the same. 3. Merely....
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....P & L A/c that the assessee has shown sales of Rs. 38,00,59,338/- and on being asked, it had furnished the details of sales. On examination of the summary, it is noticed that the assessee has sold various units at a price lower than the Ready Recknor Value which is the lowest price fixed by the government for charging stamp duty. Instances of variations noticed from the summary are tabulated as under: - Flat No. Name of purchaser Ready Recknor Value Agreement Value Variation 903-904B Mahendra J Parekh 12261500 9800000 2461500 06.11.2 503B Jenil Steel Pvt Ltd 6325500 4400000 1925500 16.03.2 603B Chitan P Thakkar 6325500 4400000 1925500 15.03.2 901-902B Mahendra J Parekh 9585500 7700000 g 1885500 06.11.2 504B Jenil Steel Pvt Ltd 5790500 4027500 1763000 16.03.2 604B Chitan P Thakkar 5790500 4027500 1763000 15.03.2 501B Jenil Steel Pvt Ltd 4816500 3355000 1461500 16.03.2 601B VUB Engg Pvt Ltd 4816500 3355000 1461500 15.03.2 201/202B Rajan R Chhiber 9129000 7700000 1429000 06.11.2 502B Jenil Steel....
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....e firm. No details have have been furnished by the assessee firm about the payments received from the above parties. Furthermore, it had sold 1001- 1004 B to M/s Jiya Sanbro Enterprises (250.93 sq.mtrs.) at a consideration of Rs. 3,14,10,000/- in the same time line, but it had sold 1201B-W (250.93 sq.mtrs) to Ms Vibha Vora at a consideration of Rs. 2,99,70,000/-. Thus, it is very clear that the assessee firm had made the sales to the related parties at a price lower than the sales made to other parties. 1. The above observations of accepting cash component over and above the agreement value are further strengthened with the material impounded during the course of survey action. In view of the clinching evidences impounded during the course of survey action, it becomes very clear that the assessee has indulged in acceptance of cash from various customers in lieu of sale of units, which was utilized in making the payments to the contractors in connection with the construction work and also in distribution amongst the partners without paying any tax. 6.2 In view of the above findings, it is summarized that the project 'Excel Plaza' has been completed long ba....
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....the sale data showed that inventory worth Rs. 39.56 crore was recorded as sales of Rs. 38 crores achieved through transactions with related parties at low market prices, the flats were sold below the ready reckoner stamp duty value and the assessee firm failed to justify this discrepancy suggesting unaccounted cash transactions. Further, corroborated by impounded evidence of cash dealings which pointed to undisclosed income used for construction payments and partner distribution. The AO further held that the declared profit of Rs. 1.41 crores was unusually low compared to industry standards indicating intentional under-reporting and the assessee failed to provide complete books of accounts for verification prompting invocation of Section 145(3) of the Act. Discrepancies in stock, gross profit and transactions supported the conclusion that the firm's financials were unreliable warranting income estimation based on available records. The AO thereafter, held that the profit shown by the assessee firm in the return of income or the profit declared by in survey proceedings is not in line with the profit earned by the assessee and also much less than the profit declared by the other ....
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....e IDS scheme, no adverse inference can be drawn on declared income. (iv) Section 145(3) Misapplication: The AO's rejection of the books under Section 145(3) is unjustified. This section pertains to incorrect computation or non-disclosure as per computation standards, not to alleged non-compliance with accounting standards. 5. It was further contended by the assessee that it follows project completion method of accounting and completed its sole project, being a redevelopment project, Excel Plaza, in the instant A.Y 2018-19. The assessee has further contended that the Income of Rs. 1,41,32,460/- was declared based on audited accounts, supported by earlier acceptance of the accounting method by the tax department. Despite this, the AO rejected the books under Section 145(3), estimating income at 15% of turnover based on an unrelated, larger real estate company's profit margins. This approach ignored key differences in business models and scale, as well as the appellant's declared income and methodology. The AO also disregarded income declared under the VIDS scheme (1.17 crore), alleging lack of documentation, despite submissions and tax payments under the scheme. Addit....
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....ed the books of accounts for the reason that the assessee has disclosed low gross profit margins as compared to M/s. Ajmera Realty and Infra Limited. In this regard, it was submitted that the Assessing Officer has wrongly compared gross profit of the assessee with that of M/s. Ajmera Realty Infra Limited, as the said company has a net worth more than 100 times that of the assessee and the assessee carries out redevelopment project, wherein the assessee has huge rental cost, whereas the comparable company has more open land in its possession and is not in the redevelopment project and therefore, the said company cannot be taken as a comparable company for the purposes of estimation of net profit by the Assessing Officer and which has rightly been appreciated by the ld. CIT(A). It was further submitted that another reason for rejection of books of accounts was the cash transactions undertaken by the assessee. In this regard, it was submitted that the assessee in A.Y. 2017-18 offered cash income from sale of parking under IDS-2016 and further, cash expenses of Rs. 17.50 lakhs was already explained has been incurred from the said cash income and apart from that, there is no evidence fo....
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....efore close of the financial year and before finalization of accounts and without incriminating or corroborative evidence is at best an estimate and the statement in any case, recorded under 133A has no evidential value especially where the same is not supported by any incriminating material. Further, regarding ground no. 3, it was submitted that this ground does not arise from the assessment order as the Assessing Officer has not made any addition u/s. 43CA of the Act. It was accordingly submitted that the order and the findings of the ld. CIT(A) be confirmed and the appeal of the revenue be dismissed. 10. We have heard the rival contentions and perused the material available on record. We find that the genesis of this case starts from the survey action at the premises of the assessee firm on 09.11.2017, wherein the survey team found that the assessee is involved in work of redevelopment project known as Excel Plaza at Ghatkopar East and has shown a closing work-in-progress in respect of building no. 7, known as Excel Plaza, at Rs. 39,74,09,746/-. It was further observed during the course of survey proceedings that all the office spaces and shops have been sold, and sale deeds ....
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....viating from the disclosure of Rs. 3.18 crores made in the survey proceedings and thereafter, the Assessing Officer proceeded to examine whether the profit of 8% of the total turnover required enhancement or not and thereafter, as we have noted (supra) in para no. 6.1, the Assessing Officer referring to certain discrepancies in terms of impounded documents found during the course of survey, and lack of explanation and reflection thereof in the books of accounts, the mismatch between the opening stock of Rs. 39,56,17,932/- and the sales of Rs. 38,00,59,338/- reported by the assessee, and the sales recorded at a price lower than the ready reckoner value for payment of the stamp duty, and the transactions with certain related parties at a price lower than the sale made to other parties, and further referring to certain cash transactions and related documents impounded during the course of survey proceedings, proceeded and rejected the books of accounts of the assessee company and a show cause was issued as to why profit should not be estimated on the basis of comparable cases and the incriminating records available on record and thereafter, relying on a case of M/s. Ajmera Realty and ....
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....r rate, which should have been considered under Section 43CA of the Act and the appellant has been able to demonstrate that none of the flat has been sold at a value less than the ready reckoner rate. The AO has not made any comment on this aspect even in her remand report. The failure to consider the full set of sales data and the relevant stamp duty valuation is a significant oversight, which undermines the AO's conclusions that flats have been sold at less than the ready reckoner value. (iii) Cash Transactions and IDS Declaration: The AO has raised an issue regarding cash receipts, alleging that the firm has not recorded these transactions in its books. However, the appellant has clarified that these cash receipts were duly declared under the Income Declaration Scheme (IDS) of 2016. The relevant cash was deposited in the bank and appropriately accounted for in the books. Once income is declared under the IDS and tax is paid, no further adverse inference can be drawn with respect to such income. Upon perusal of the assessment order (page no 19-23) wherein the AO has reproduced the cash receipts, it is seen that these transactions pertain to the FY 2014-15 and 20....
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....s of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised. It is to be noted that in the instant case the project comprises of redevelopment of an existing building which is fraught with several challenges in terms of statutory approvals, building clearances, consent of the existing tenants and the issue of occupation certificate. In the instant case the appellant has stated even on the date of survey that the occupation certificate for the project has not been issued and therefore in my considered view there is no anomaly in the practise of the appellant to finally recognise revenue on the completion of the project. The rejection of books based on the non-compliance with accounting standards is therefore not a valid reason in this case. 5.5.4 After considering the submissions made by the appellant and the reasoning provided by the AO, it is clear that the rejection of the books of accounts under Section 145(3) was n....
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....e project is delayed which has happened in the case of appellant. The aspect of effect of revenue recognition on uncertainty associated with the projects has also been discussed by me in ground no 1 above and since the instant case is that of a redevelopment project having its own set of challenges, it is difficult for the Partner to estimate and declare the exact income before the end of the Financial year when the accounts where not ready and hence no addition can be made only based on such statement as it is impossible for any assessee to accurately estimate the income much before the end of the Financial year. It is evident that the AO's reliance on the survey statement, recorded before the financial year's end and based on an estimated income, was improper and unsupported by corroborative evidence. Judicial precedents affirm that additions cannot be made solely on the basis of survey statements. The Appellant's audited accounts, prepared after the financial year's end, remain unchallenged in terms of specific errors. The addition of Rs. 4,28,76,440/-, estimated at 15% of turnover, is neither substantiated by reliable evidence nor consistent with the facts or law. In view of th....