JCIT Vs Narayan Land Estate (ITAT Ahmedabad)
ITAT Ahmedabad held that entire receipts on account of on-money/premium charged would not to be treated as the undisclosed income but only net profit rate could be applied on unaccounted sales/receipt for the purpose of making addition.
Facts- A search u/s. 132 of the Act was carried out in the Narayan Realty Group of cases on 13.11.2014 and survey u/s. 133A of the Act was carried out at the business premises of the appellant and seizure of various documents and back-up of Tally data of M/s. Narayan Land Estate for the period from 01.04.2007 to 31.03.2014, various incriminating material pertaining to the appellant firm was found and impounded. Those documents showed that the appellant had accepted sale consideration of various schemes such as Narayan Square, Narayan Residency, Narayan Shrushti in cash which were not recorded in the regulars books of accounts of the appellant firm.
The AO has reason to believe that the books of accounts including back-up and server seized pertained to the appellant and had bearing on determination of its total income and accordingly, proceeding u/s. 153C of the Act was initiated on 28.10.2016. The notice u/s. 153C was issued whereupon the appellant filed return of income on 14.11.2016 showing total income at Rs. 3,29,340/-. On 21.11.2016 notice under Section 143(2) followed by notice under Section 142(1) along with questionnaire was duly served upon the appellant.
The on-money receipt on sale of flat in different project of the assessee on the basis of the search/survey and the disclosed income in respect of such receipt is the subject matter before us.
AO made addition of Rs. 3,67,95,791/- as undisclosed income from Narayan Shrushti Project for the year under consideration. The addition of the gross amount of on-money receipt was challenged before the CIT(A) who ultimately estimated profit @30% of the gross amount of on-money receipt and accordingly restricted addition to Rs. 1,10,38,738/- being 30% of Rs. 3,67,95,791/- as undisclosed income for. A.Y. 2009-10 which is in appeal before us by the Revenue.
Conclusion- It is a settled principle of law that where it is found that the assessee is charging on-money/premium in respect of booking of flats, the entire receipts on account of on-money/premium charged would not to be treated as the undisclosed income of the assessee but only net profit rate could be applied on unaccounted sales/receipt for the purpose of making addition. It is also the ratio decided by the Jurisdictional High Court in the case of CIT vs. President Industries (supra) as also relied upon by the Ld. A.R. before us. It is a practice of the real estate market that cash over and above the consideration in cheques are collected from the customers but the developers have to incur various unaccounted expenses in regard to the procurement of land and approval of the projects by various authorities too and therefore, the estimated profit of on-money/premium amount collected from the customers is to be brought to tax instead of adding the gross amount of on-money/premium to the total income.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The bunch appeals preferred by the Revenue are directed against the orders dated 24.01.2019 & 15.09.2019 passed by the Ld. CIT(A)-12, Ahmedabad arising out of the orders passed by the DCIT, Central Circle-1, Vadodara dated 30.05.2017 & 20.12.2018 under Section 153C r.w.s. 143(3) of the Income Tax Act, 1961(hereinafter referred to as “the Act”) for A.Ys. 2009-10, 2011-12, 2012-13, 2014-15, under Section 147 r.w.s. 143(3) for A.Y. 2015-16 and under Section 143(3) for A.Y. 2016-17 respectively.
2. Since the entire group of appeals relate to the Revenue circumventing the identical issue, these are heard analogously and are being disposed of by common order.
IT(SS)A No. 182/Ahd/2019 is taken as the lead case.
3. The grounds of appeal raised by the Revenue in IT(SS)A No. 182/Ahd/2019 are read as under:
“1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding the gross profit @30% on the ‘On-money’ receipt of Rs.3,67,95,791/- when the assessee miserably failed to produce documents w.r.t. expenses incurred against the above receipts of ‘On-money’.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) should have upheld the addition of entire receipt of ‘On-money’ of Rs.3,67,95,791/-, as the assessee could not produce any document for expenses incurred against the above receipts of ‘On-money’ and the onus lies on the assessee to prove the expenses incurred.
3. It is, therefore, prayed that the order the Ld. CIT(A)-12, Ahmedabad may be set aside and that of the AO may be restored to the above extent.
4. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.”
4. The brief facts leading to the case is this that the appellant, engaged in the business of real estate and construction, filed its return of income on 25.09.2009 under Section 139(1) of the Act declaring total income at Rs. 3,29,340/-. Subsequently, a search under Section 132 of the Act was carried out in the Narayan Realty Group of cases on 13.11.2014 and survey under Section 133A of the Act was carried out at the business premises of the appellant and seizure of various documents as per Annexure-A1 and A6 and back-up of Tally data of M/s. Narayan Land Estate for the period from 01.04.2007 to 31.03.2014, various incriminating material pertaining to the appellant firm was found and impounded. Those documents showed that the appellant had accepted sale consideration of various schemes such as Narayan Square, Narayan Residency, Narayan Shrushti in cash which were not recorded in the regulars books of accounts of the appellant firm. The AO has reason to believe that the books of accounts including back-up and server seized pertained to the appellant and had bearing on determination of its total income and accordingly, proceeding under Section 153C of the Act was initiated on 28.10.2016. The notice under Section 153C was issued whereupon the appellant filed return of income on 14.11.2016 showing total income at Rs. 3,29,340/-. On 21.11.2016 notice under Section 143(2) followed by notice under Section 142(1) alongwith questionnaire was duly served upon the appellant.
5. The on-money receipt on sale of flat in different project of the assessee on the basis of the search/survey and the disclosed income in respect of such receipt is the subject matter before us.
6. The Ld. AO made addition of Rs. 3,67,95,791/- as undisclosed income from Narayan Shrushti Project for the year under consideration. The addition of the gross amount of on-money receipt was challenged before the Ld. CIT(A) who ultimately estimated profit @30% of the gross amount of on-money receipt and accordingly restricted addition to Rs. 1,10,38,738/- being 30% of Rs. 3,67,95,791/- as undisclosed income for. A.Y. 2009-10 which is in appeal before us by the Revenue.
7. At the time of hearing of the instant appeal the Ld. Counsel appearing for the Revenue submitted before us that the order passed by the Ld. CIT(A) is erroneous in restricting addition upon estimating profit at 30% of the gross on-money receipt by the assessee in the absence of documents produced by the assessee incurring expenses of the above receipts of on-money. He ultimately relies upon the order passed by the Ld. AO.
8. On the other hand, the Ld. Representative appearing for the assessee supports the order passed by the First Appellant Authority. According to him estimated profit of on-money/premium collected from the customers can be said to be justified instead of adding the gross amount of on-money/premium to the total income. He also relies upon the order passed by the Hon’ble Jurisdictional High Court in the matter of CIT vs. President Industries, reported in (2002) 124 Taxman 654 (Guj.) in support of his argument.
9. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.
10. The brief facts leading to the case is that during the course of survey at the Head Office of the appellant at Narayan Chambers, Bharuch on 13.11.2014 various incriminating documents were found and impounded proving that the firm was involved in the practice of receiving a part of the sales consideration of such apartments and shops in cash, which is not recorded in the books of accounts of the company. Documents impounded and inventoried as Annexure A-2 shows price list of various units of Narayan Square Project wherein the minimum rate/price of a flat in the scheme “Narayan Square” was shown as Rs. 13,61,000/- and the maximum price was at Rs. 14,40,000/-.
11. Similarly price list of various other units of the schemes namely “Narayan Shrushti”, “Narayan Shrushti Duplex”, “Narayan Square” were also impounded. Furthermore, one of the partners of the firm Mr. Hemant Prajapati, in his statement on oath under Section 131(1A) of the Act has accepted the page contained the price working of units in Narayan Square. However, from the books of accounts seized, it is observed that the sale consideration from these flats and shops are in the range of Rs. 5,00,000/- to Rs. 7,00,000/- which is much lower than the prices mentioned in the impounded pages. The same fact of mentioning of rate of the flats in the scheme more than the price mentioned in the books of accounts seized and the statement on oath made by the partner Mr. Hemant Prajapati was also recorded in the case of Narayan Residency, Narayan Shrushti, Narayan Luxuria. It is also a fact that during the pendency of the proceeding under Section 153C of the Act for A.Y. 2009-10 to 2015-16 the appellant approached the Hon’ble Income Tax Settlement Commission, Mumbai by filing an application dated 22.12.2016 for A.Y. 2009-10 to 2016-17 which stood rejected on 02.01.2017 due to technical ground whereupon on 31.01.2017 the appellant once again filed application before the said commission disclosing the additional income as under:
