Case Law Details
Padmavati Housing Corporation Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that addition on account of on-money received @50% is on a palpably very high side. Accordingly, the same is restricted to Gross Profit percentage i.e. 15%.
Facts-
The assessee at the outset stated that the sole challenge to the order of the ld.CIT(A) in the present appeals was against confirmation of addition made to the income of the assessee on account of alleged on-money received by the assessee from its business of real estate development.
Conclusion-
Held that we agree that it is highly improbable in this line of business to make profits upto the extent of 50% or more of the turnover that too on sale of such small sized properties. Even the Ld.DR was unable to enlighten us with statistics showing otherwise. We therefore agree with the ld.counsel for the assessee that making addition of the entire on-money received by the assessee would not be justified. Though we are of the view that the onus is on the assessee to show what expenses have been incurred by it in cash, which have also remained unexplained, but at the same time noting the fact that bungalows sold by the assessee were not hi-end properties, but small sized bungalows the component of the on-money received on the same @ 50% of the booked price is on a palpably very high side. We are of the view that in the light of the facts and circumstances, as noted above by us, it would be just and reasonable to restrict the addition to the extent of profit element embedded in this transaction only. The AO is directed to restrict the addition by estimating GP on the on money receipts, at the higher of the rate in this line of business or as agreed to by him before us @ 15% thereof.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
Present three appeals have been filed by the assessee against common order passed by the ld. Commissioner of IncomeTax(Appeals)-12, Ahmedabad [hereinafter referred to as “Ld.CIT(A)”]under section 250(6) of the Income Tax Act, 1961 (“the Act” for short) dated 10.12.2018 pertaining to the above three assessment years.
2. It was common ground that the issue involved in all the appeals was similar, arising in identical backdrop of facts. Therefore, all three appeals were taken up together for hearing and are being disposed by a common consolidated order.
3. Ld.counsel for the assessee at the outset stated that the sole challenge to the order of the ld.CIT(A) in the present appeals was against confirmation of addition made to the income of the assessee on account of alleged on-money received by the assessee from its business of real estate development. He drew our attention to the grounds raised by the assessee in all three appeals as under:
- On the facts, and in the circumstances of the case, the Commissioner of Income Tax (Appea(s) -12. Ahmedabad (referred to as CIT (Appea(s)) erred in determining the tota( income of the appe((ant company at –
Asst.Year. 2013-14
Rs.33,53,680/- as against tota( income of Rs.3,08,680/- disc(osed by the appe((ant.
.
.
.
Asst. Year. 2015-16
Rs. 1,57,19,060/- as against tota( income of Rs.21,69,060/- disc(osed by the appe((ant.
.
.
.
Asst. Year. 2016-17
Rs. 48,33,160/- as against tota( income of Rs. 14,32,160/- disc(osed by the appe((ant or
2. On the facts and circumstances of the case as we(( as (aw on the subject, the (earned CIT (Appea(s) has erred in confirming the action of the Assessing Officer for making an addition of a((eged cash receipt of –
Asst. Year. 2013-14
Rs. 30,45,000/-
Asst. Year. 2015-16
Rs. 1,35,50,000/-
Asst. Year. 2016-17
Rs.3, 01,000/-
u/s. 68 of the Act on account of “onmoney” received without appreciating the fact that no any corroborative evidence was p(aced on record by the Ld. AO.
3. It is therefore prayed that the above addition made by assessing Officer and confirmed by (earned CIT (Appea(s) may p(ease be de(eted.
4. The ld.counsel for the assessee, pleaded that his solitary prayer on the issue was that the addition on account of alleged on-money received by the assessee be restricted to the profit element embedded in the same which he prayed to be taken at 15% or whatever the Bench considers fit and in support of his pleadings, besides relying on various judicial decisions, he contended that it is common knowledge that the entire amount received in cash is not in the nature of income, and major portion of it is also expended in He further pointed out that as per the facts of the case before us, component of the on-money received was almost 50% or more of the amounts booked on account of sale of the property in the books of accounts of the assessee and by no stretch of logic or imagination such a huge amount, almost 50% of the total sale consideration of the property accounted for, could be said to be the profit element in real estate transaction. He further contended that the properties sold were too small in size to have such a large margin of profit element.
5. The ld.DR, on the other hand, vehemently objected to this plea of the assessee stating that the documents and the facts and circumstances revealed clearly that assessee had received on-money on sale of the property in the course of business and there was nothing to demonstrate any expenditure incurred out of the same by the assessee. That accordingly there was no reason to accede to this request of the ld.counsel for the assessee at all.
6. We have heard both the parties. Before proceeding to adjudicate the issue, we shall first bring out the relevant facts as drawn in para 3 to 3.2 of the consolidated order passed by the ld.CIT(A) in the present case as under:
“Facts of the case
3. The appe((ant is a partnership firm engaged in the business of construction and deve(oping of housing projects. A search action u/s 132 of the IT Act. was conducted in Akshar Group of cases on 22/09/2015 which inc(uded M/s Padmavati Housing Corporation where survey u/s 1 33A was a(so carried out. During the course of search certain incriminating documents were found and seized from the premises of Shri Mukesh J Shah. According(y proceedings u/s 1 53C were initiated in the case of the appe((ant. In response to notice issued on 06/04/2017 the appe((ant furnished return of income for A.Y. 2013-14 on 18/05/2017 dec(aring tota( income of Rs.3,08,680/-, same as that dec(ared in the return of income fi(ed u/s 139(1) on 30/09/2014. In pursuance of notices u/s 143(2) and 142(1), the AR of the appe((ant fi(ed the detai(s and exp(anations. During the period of search A. Ys. (A. Ys. 2010-11 to 2016-17) the appe((ant had undertaken a housing project ca((ed “New Mont Vi((a” at Gotri, Vadodara which is a scheme of 20 (uxurious bunga(ows.
3.1 During the survey proceedings .at the business premises of M/s Pad mavati Housing Corporation (herein after referred to as PHC) some registers/(oose papers were found and impounded as Annexure A3 which pertained to the bookings of bunga(ows made in New Mont Vi((a project. The AO noted that Pages 4, 5, 6 and 7 of Annexure A3 are an index containing detai(s of each bunga(ow with bui(t-up area name of buyer and amount in rupees. The scanned image is at page 3 of the assessment order. On verification of (oose papers inventorised from the premises of M/s. Rekvina Laboratories Ltd. as Annexure BF1 Page No. 33 it was seen that the page ref(ected the detai(s of cheque and cash against some of the bunga(ow owners in New Mont Vi((a. The scanned image is at page 4 of the assessment order. The contents of these pages are tabu(ated at pages 5 and 6 of the assessment order. On the verification of the same, the AO found that the contents of the page very c(ear(y show that on-money has been received by the firm in the project. The detai(s of transaction re(ated to bunga(ow No. A-20 as appearing in the register Annexure A3 reproduced at page 6 of the assessment order showed that the appe((ant firm made the sa(e agreement for Rs.29,41,000/- vide its sa(e deed dated 17/08/2012 and construction agreement for Rs.11,40,000/-. Against this tota( amount of Rs.40,55,000/- the register showed amount of Rs.80,00,000/- (the re(evant page is reproduced at page 7 of the assessment order). According(y the appe((ant was show caused to exp(ain the difference of such amounts and why the difference shou(d not be added to its tota( income. It was submitted by the appe((ant that the differences in the sa(e price as per register Annexure A3 and page 33 of Annexure BF1 and sa(es and construction agreement were because some of the customers had a(tered the structure of the bunga(ows on their own and there were certain incidents re(ated to construction and interior undertaking by the customers. The AO did not find the exp(anation acceptab(e as the appe((ant’s submission was not supported by documentary evidences. The AO arrived at difference of Rs.33,00,000/- received as on-money in the context of bunga(ow No. A20 re(evant to A.Y. 2013- 14 and added the amount whi(e determining the assessed tota( income of Rs. 36,08,680/-.
3.2 Simi(ar(y for the A.Y. 2015-16 the AO arrived at the difference of Rs.1,44,75,000/- as on-money for 8 bunga(ows (C1, C6, B7, B8, C12, C1 6, C1 7 and A1 9) and tota( income was determined at Rs. 1,66,44,060/- against returned income of Rs.21, 69,060/- and for A. Y. 2016-17 the AO arrived at the difference of Rs.39,94,OOO/- as on-money for 4 bunga(ows (C2, C5, C1 1 and A21) and the tota( income was determined at Rs.49,60,160/- against returned income of Rs.14,32,160/-.”
7. The ld.counsel for the assessee has not challenged the addition made on account of on-money received on sale of property in the course of business carried on by the assessee and his only plea is vis-à-vis restricting the addition to the profit element embedded in the same. We shall now proceed to examine whether there is any merit in this contention of the ld.counsel for the assessee.
The contention of the ld.counsel for the assessee before us in support of his claim is that the on-money received was a substantial percentage of the total sale proceeds booked by the assessee of the properties sold, being upto 50% of the same, and if the on-money is treated entirely as income of the assessee, GP/NP of the assessee would be 50% and more of the turnover of the assessee, which is highly improbable in this line of business. In this regard, he has also drawn our attention to the fact that only bungalows were sold by the assessee which were small in size of 1700 sq.meters odd, i.e approx.. 160 sq. meters and there was absolutely no scope for making such huge profit on sale of the said bungalows .That it was a highly improbable proposition and if the addition was sustained to the extent of entire on-money received on sale, it would be highly unjustified. In this regard, he drew our attention to the table reproduced at page no.11 of the CIT(A) order which listed the various bungalows sold by the assessee during three years on which the assessee was found to have received on money, giving details of their sizes, of their built-up area and amount for which sale of these bungalows was actually booked by the assessee, and the on-money which was treated by the Revenue to have been received by the assessee on the basis of the documents found during the course of search, as under:
8. Considering the above admitted facts, it is clear that the factual contentions made by the ld.counsel of the assessee with respect to the on-money received appears to be correct. The table reveals and as contended by the ld.counsel for the assessee before us also that, on-money components on the sale of these bungalows approximated on an average more than 50% of the price at which bungalows were booked as sold. Also the built up area of the bungalows sold approximates 160 sq. metres. Having noted these facts, we agree that it is highly improbable in this line of business to make profits upto the extent of 50% or more of the turnover that too on sale of such small sized properties. Even the Ld.DR was unable to enlighten us with statistics showing otherwise. We therefore agree with the ld.counsel for the assessee that making addition of the entire on-money received by the assessee would not be justified. Though we are of the view that the onus is on the assessee to show what expenses have been incurred by it in cash, which have also remained unexplained, but at the same time noting the fact that bungalows sold by the assessee were not hi-end properties, but small sized bungalows the component of the on-money received on the same @ 50% of the booked price is on a palpably very high side. We are of the view that in the light of the facts and circumstances, as noted above by us, it would be just and reasonable to restrict the addition to the extent of profit element embedded in this transaction only. The AO is directed to restrict the addition by estimating GP on the on money receipts, at the higher of the rate in this line of business or as agreed to by him before us @ 15% thereof.
We may add here that our above decision may not be treated as precedent in any other case having been rendered in the peculiar facts and circumstances of the case demonstrated before us by the ld.counsel for the assessee.
9. In view of the above, all three appeals of the assessee are partly
allowed in the above terms.
Order pronounced in the Court on 6TH January, 2023 at Ahmedabad.
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