M/s Runwal Projects Pvt Ltd Vs DCIT (ITAT Mumbai)
There is no dispute with regard to the fact of receipt of on-money from sale of flats. This fact has been admitted by the assessee including its director in the statement recorded during the course of search. This fact is also supported by incriminating material found as a result of search. During the course of search, the department has found application form, booking form of certain flats as per which the rate charged for sales is higher than the amount recorded in the books of account. Accordingly, undisclosed income of Rs.18,82,59,020 has been quantified from sale of 21 flats in project Runwal Elegante. The assessee has filed paper book containing copies of application for booking found during search. On perusal of documents filed by the assessee, we find that in 4 cases, the rate charged by the assessee and recorded in the books of account is much higher than or equal to the amount recorded in the incriminating material found in the form of application for booking. We further observe that the AO has arrived at average rate of Rs.21 ,400 per sq.ft. and then applied such rate to 21 flats and compared the rate as per books of account of the assessee recorded in ERP system to arrive at a difference of Rs.18,82,59,020. While doing so, the AO has determined average rate as per books of account by dividing total sale consideration from the saleable area of the flat to arrive at average rate per sq.ft., whereas while determining undisclosed income average rate has been arrived at on the basis of total carpet area of the flat. There is a lacunae in the quantification of undisclosed income inasmuch as that by adopting average rate of Rs.21 ,400 per sq.ft. and applying such rate uniformly to all flats without any evidence found as a result of search. In fact it is the case of the assessee also. The assessee never disputed the fact of receipt of on-money; however, disputed the manner in which the undisclosed income has been quantified. Therefore, we are of the considered view that the AO was incorrect in quantifying undisclosed income by adopting average rate and then applying such rate to all flats sold in the project without any evidence found as a result of search.
FULL TEXT OF THE ITAT JUDGMENT
This appeal filed by the assessee is directed against order of the CIT(A)-52, Mumbai dated 09-06-2017 and it pertains to AY 2015-16. The assessee has raised the following grounds of appeal:-
“1) On the facts and circumstances of the case as well as in Law, Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of Rs.18,82,59,020/- as alleged on money received on sale of flats, without considering the facts and circumstances of the case.
2) On the facts and circumstances of the case as well as in Law, Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in not appreciating the fact that the appellant is following the Project Completion Method to^ recognize the income from the projects, hence on money is to be taxed in the year of completion of the relevant project from where the same has been earned.”
2. The brief facts of the case are that the assessee is a private limited company engaged in the business of builders and developers and also running malls, filed its return of income for AY 2015-16 on 28-11-2015 declaring total income of Rs.2,390. A search & seizure action u/s 132 of the Income-tax Act, 1961 was carried out on Runwal group of cases on 17-11-2014. During the course of search, incriminating material found and seized in the form of application for booking flats revealed that the assessee has sold flats in its project ‘Runwal Elegante’ and other projects at the rate ranging from Rs. 32,000 to Rs.38,000 per sq.ft., whereas in the books of account maintained under ERP system shown much lesser amount. During the course of search, when seized materials were confronted to the assessee, the assessee has admitted receipt of on-money from sale of flats from various customers. During the course of search, statements from various persons including Shri Anand Runwal, head of Sales, Runwal group, Ms. Sujatha Rao, Sales and Customer Relation Manager & Personal Secretary to Shri Sandeep Runwal, shri Kishore P Jain, head of Runwal group and Shri Shamsher Dutt, Senior Vice President, Customer Relations, Runwal group have accepted the fact that the group was receiving on-money from sale of flats from various customers. When these evidences were confronted to Shri Sandeep Runwal, the Managing Director of the assessee has admitted in his statement recorded u/s 132(4) of the I.T. Act, had accepted fact that receipt of on-money over and above the registered value of properties. Accordingly, based on incriminating material found during the course of search and also on the basis of admission of various personnel working for the assessee, the assessee has admitted additional income of Rs.38.06 crores in various companies’ names including an amount of Rs.18,82,59,020 towards project Runwal Elegante for the assessment year 2015-16.
3. Consequent to search, the case of the assessee was centralized. Subsequently, the case has been selected for scrutiny and accordingly, notices u/s 143(2) and 142(1) of the Act, were issued. In response to notices, the authorized representative of the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, the AO observed that although the assessee has admitted undisclosed income of Rs.18,82,59,020 towards on-money receipts from sale of flats, failed to disclose undisclosed income in the return of income filed for the year. Therefore, called upon the assessee to explain as to why addition shall not be made towards undisclosed income admitted during the course of search. In response, the assessee, vide letter dated 23-09-2016 submitted that it has admitted undisclosed income of Rs.18,82,59,020 towards on-money receipts from sale of flats based on certain incriminating documents found during the course of search; however, no disclosure has been made in the return of income owing to the fact that the assessee is following project completion method for recognition of revenue and the project from which the assessee has received on-money, has not been completed during the financial year relevant to AY 2015-16. Therefore, additional income has not been disclosed in the return of income for the impugned assessment year. The assessee further submitted that although the Managing Director of the company has admitted undisclosed income of Rs.18,82,59,020 during the course of search in statement recorded u/s 132(4), such admission has been made under coercion without verification of relevant documents, but fact remains that the assessee has collected on-money from sale of flats from certain customers. Therefore, the quantification made during the course of search on the basis of taking a higher rate of sale and adopting such rate for all flats is incorrect.
4. The AO, after considering relevant submissions of the assessee and also taking into account statements recorded from various personnel working for the assessee, including statement recorded from Shri Sandeep Runwal observed that the assessee continuously admitting the fact of receipt of on-money from sale of flats. The working of quantum of on-money has been done during search proceedings is also not being disputed by the assessee. However, the assessee is claiming that since it is following project completion method for recognition of revenue and the project from which on-money has been received is not completed during the year under consideration, whatever on-money received from sale of flats, may be allowed to offer for taxation in the year of completion of the project. But, fact remains that the method of accounting is relevant for the receipts that form part of the sales, but the method of accounting followed by the assessee is relevant insofar as taxation of on-money and as such, on-money has to be taxed in the year of receipt. Accordingly, he made addition of Rs.18,82,59,020 towards on-money received from sale of flats.
5. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has filed elaborate written submissions which has been reproduced at para 5 on pages 3 to 8 of the order of the Ld.CIT(A). The assessee also relied upon plethora of judgements, including the decision of Hon’ble Supreme Court in the case of CIT vs Bilhari Investments Pvt Ltd (2008) 299 ITR 1 (SC). The sum and substance of the arguments of the assessee before the Ld.CIT(A) are that the AO has made additions towards receipt of on-money based on admission of the assessee without appreciating the fact that such admission has been quantified during the course of search based on few incriminating documents in the form of application for booking flat. The assessee further submitted that on-money receipt has been quantified on the basis of taking a higher rate ignoring the fact that in many cases, the amount recorded in the books of account as per ERP system is more than the amount recorded in application for booking flats. The quantification has been done by taking average rate of Rs.21 ,400 per sq.ft. and compared it with the rate appeared in the books of account to determine difference, but fact remains that while comparing the rate as per books of account, the AO has taken average rate of sales by dividing the total carpet area of the flat ignoring the fact that if the saleable area of the flat is taken, the average rate works out to much more than the rate quantified by the AO. The assessee further submitted that although it had admitted additional income for AY 2015- 16, did not disclose such undisclosed income owing to the fact that it is following project completion method for recognition of revenue and the project on which on-money has been received is not completed during the under consideration. Therefore, the AO was erred in making addition towards on-money on the basis of estimated sale price and also ignoring the fact that the asssessee is following project completion method for recognition of revenue.
6. The CIT(A), after considering relevant submissions of the assessee and also taking into account statement recorded during the course of search from the personnel working for the assessee, including statement of Shri Sandeep Runwal, director of the company held that from the evidences gathered during the course of search it is very clear that the assessee has accepted receipt of on-money on sale of flats. Further, the employees of the assessee have also accepted the fact that on-money was being received which were outside the regular books of account and was not intended to be shown or disclosed in the books of account. Although, the assessee has admitted undisclosed income on the basis of incriminating material found during the course of search, failed to admit such undisclosed income in the return of income without any valid retraction. Therefore, he opined that there is no merit in the arguments of the assessee that admission of additional income during the course of search is given under coercion and also such undisclosed income is taxable in the year in which the project is completed. The relevant portion of the order of the CIT(A) is extracted below:-
6. I have considered the facts nf the case, submissions of the asscs&cc a& well as the order ol the AO. From the facts of the case ii appears that during rhe course of search manual booking forms in case of various flats were seized and as per the sale rate and charge per square feet of carpet area by the assesses, in respect of Runwal Elegante project ranged from Rs 27.S54/-to Rs 38. J62/- per square feet. Similarly, in respect of another project namely Runwal Symphony, the sale rate was Rs 27,411/ – to Rs 27,470/- per square feet. As against this, in the ERP system, the electronic record maintained by the assessee, the sale rate shown by the assessee was only Rs 10,976/- to Rs 17,641/- per square feet of carpet area. There was huge gap in the sale rate charged by the assessee and sale rate intended to be disclosed in the regular hooks of accounts. In fact the relevant seized data seized was for the period August 2014 to October, 2014 and the search has been carried out on 17.11.2014. In view of the huge on – money receipt during the course of search, statement of Sales Manager Shri Ravi Raichuria at Runwal Symphony project was recorded on oath. In the said statement, Shri Raichuria admitted that car parking were being sold for Rs 12 to 15 lacs each, which were unaccounted. For clarity, the relevant statement has been reproduced as under:
“Q.No.45 I am showing you page number 35 of Annexure A-4, impounded during the course of survey from the site office of Runwal Symphony in which few things are written in your handwriting, please confirm?
Ans. Yes, I confirm the same. It is the cost sheet given to the new client during visit of this site.
Q.No.46 I am showing you page number 13 of Annexure A-2 impounded impounded during the course of survey from the site office of Runwal Symphony in which few things are written in your hand writing. Please confirm the same ?
Ans–, Sir, I confirm that the details or, page no 33 of Annexure A-2 is written in mi/ handwriting and has been shown to me.
Q No 47 Please explain the detail written in your writing on page 13: of Annexure A-2?
Ans. Sir, as I told you in the answer to Q No 41, I was instrumental in making sale of the flat no A-904 co Chetna Chedda, sir, the details are reading the final deal of sate of flat wherein it is agreed that the total cost of flat is Rs 2,36,98,500/- based on the rate of Rs 15000 per square feet as per carpet area, further the client has to pay token amount of Rs.1,00,000/- on 8th September, 2014 and the other component which we use for cash payment on 13th September. 2014 – Rs 50 lacs and on 16th September, 2014 – Rs. 20 lacs. ‘
7. Similarly, statement of Shri Anand Modi head of Sale of Runwal Group was recorded on oath during the course of search in which he admitted that there was receipt of non-money to the tune of Rs 50 – 60 lacs in such deed. The relevant poruon of the statement of Shri An and Modi is reproduced as under;
Q. During the course of serarch proceedings at your premises. 2O1, Sunrise, Yogi Hills, Mulund West Mumbai 400 0 080 on 13/11/2014, you have stated that there are instances where the company has accepted cash / on money towards sale of residential units in the project developed by Runwal Group. Please give examples and also elaborate upon cash transactions.
Ans. One such instances is one of our clients, Mr Lal Punjabi has paid approx. Rs 60 lacs in cash or his deaf to buy a flat in our project called Rumval Elegante, Lokhandwala, Mumbai in another instance, one Mr Vijay Dhirvani, who stays in the same complex where I am residing has approached me with a request to finalise his booking of flat in Runwal Anthurium, Mulund as he came to know that I work for Runwal Group. As I do not handle Mukmd Project, the case was referred to Sujata Rao, Sr. General Manager through our channel partner Mr Sanjeeva Rao. I think the deal was finally negotiated and cash was delivered at head office at the time of closure of the deal, which may be approximately approx. Ry 50 lacs.”
8. Similarly, statement of Smt. SujataRao, Sales and Customer Relation Manager and Private Secretary to Shri Sandeep Runwal was recorded wherein she admitted about receipt of on-money. The relevant portion of her statement is reproduced as under;
“Q.8 Does your company accept on-money towards the sale of flats in addition to the registered price?
Ans. Usually these decisions pertaining to mode of payment (Cash and cheque component) is decided by Sandcep Runwal. The decisions taken, thus were communicated to the customers. Cash brought in by that customer on account of on-money is accepted by Mr Sandeep Runwal, directly. In one instances, since he was busy. I was asked to collect Rs 50 lacs approx from a customer who has booked a flat at Runwal Anthurium. I have accepted the money from Shri Sanjeeva Rao, a real real esate broker / channel partner.
Q.9 What is the proportion of on-mancy in sate price of flat.
Ans The ratio of cash, to total agreed price, is decided and determined by Mr Sandeep Runwal. I have no knowledge about the rate or percentage of cash component in the agreed sale price.”
9. Likewise, statement of Shri Klshore P Jain, Head of Taxation, Runwal group was also recorded about the on-money and he too confirmed about receipt of the Finally, the statement of Shri Sandeep Runwal, Director of the company was recorded on oath, wherein he agreed of applying higher sale rate in respect of ail flats and consequently, offered additional income to the tune of Rs.38,06,61,255/- as under:
