Deemed rent concept not applies to property held as stock-in-trade

ACIT Vs Shoppers Buildcon Private Ltd (ITAT Ahmedabad)

Facts- The assessee is engaged in the business of construction and development of commercial and residential projects. A search u/s. 132 was conducted in the cases belonging to the Sewani Group, including the assessee, on 09.09.2015. Pursuant to the said action, a notice under Section 153A of the Act was issued to the assessee on 29.08.2016.

The assessee filed its return of income for the year under consideration on 17.10.2016 declaring a total income of Rs.80,25,440/-. During the course of search conducted at the premises of the assessee certain documents were seized and identified. The said documents contained the entries regarding the on-money received by the assessee on sale of flats from a project named ‘Krishna Venue’. After considering the explanation offered by the assessee in respect of relevant entries found reflected in the relevant seized documents and taking into consideration the details and documents available on record, the AO arrived at a conclusion that the on-money of Rs.3,03,50,000/- received by the assessee in cash pertaining to the sale of flats recognized in the year under consideration as well as the on-money of Rs.6,70,51,310/- received by the assessee as reflected in the relevant seized material pertaining to sale of flats made in other years represented the undisclosed income of the assessee. He accordingly made a total addition of Rs.9,74,01,310/- on account of on-money received by the assessee on sale of flats.

The addition of Rs.9,74,01,310/- made by the AO on account of on-money was challenged by the assessee in appeal before the learned CIT(A). The learned CIT(A) directed the AO to ensure that the on-money to the extent of Rs.6,70,51,310/- be taxed in the hands of the assessee not in the year under consideration but in the relevant years when the corresponding flats were sold and income from such sales was offered to tax. Further, with regard to addition of Rs. 3,03,50,000/-, learned CIT(A) restricted the same to Rs. 60,70,000/- being 20% net profit embedded in the on-money.

Being aggrieved by the relief allowed to the assessee, the revenue has raised the issue in appeal before Tribunal.

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