Ind Sing Developers Pvt. Ltd. Vs DCIT (ITAT Bangalore)
Held that the transaction has not been concluded in the AY under consideration when the assessee received nomination fee. Thus, the transaction was not complete so as to assess the income under complete contract method.
Facts- The assessee had entered into an MOU with M/s. Shobha Developers for acquisition of 75 acres of land. In connection with this transaction the assessee had entered into a nomination agreement on 17.11.2006 with Sri. R.B. Nataraj and in pursuance thereof had received 7 crores from Sri. R.B. Nataraj, in consideration of nomination of all the rights acquired by the assessee company from the original vendors of the property. The assessee had shown the nomination fees received as advance and not as income. The A.O. held that the same is compensation received in addition to sale consideration, The AO proposed to treat it as income and issued a show cause notice.
Conclusion- Held that the addition made by AO on this count is at Rs.7 crores is part of this consideration received by assessee. This amount of Rs.7 crores out of Rs.53 crores cannot be treated in isolation. The MOU was entered by assessee for arranging 75 acres of land to be handed over to Shobha Developers. There is a litigation between the parties, which is subject matter of arbitration which is pending for award. Further, as per MOU, assessee has to arrange total land of 75 acres out of this assessee arranged only 55 acres of land and 20 acres of land still to be procured and the issue is under litigation. The AO is not justified in bringing an amount of Rs.7 crores to taxation unless the contract is completed.
CIT(A) justified in holding that the transaction has not been concluded in the AY under consideration when the assessee received nomination fee of Rs.7 crores. The transaction was not complete so as to assess the income under complete contract method. Even percentage completion method cannot be adopted in respect of the properties which were transferred, quite a number of pending issues were there.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1 The appeals for assessment years 2006-07 & 2008–09 are cross appeals and appeal for 2007-08 by department directed against the common order of CIT(A) dated 30.11.2011. Certain issues in these appeals are common and thus they are clubbed together, heard together and disposed of by this common order for the sake of convenience.
Assessment Year: 2006-2007
2. ITA No.108/Bang/2012 by the assessee and ITA No.348/Bang/2012 by the department:
3. The first ground in this appeal is with regard to invoking the jurisdiction u/s 153A of the Income-tax Act,1961 [‘the Act’ for short]. The contention of the Ld. A.R. is that mandatory condition to invoke the jurisdiction u/s 153A of the Act did not exist, as such issue of notice u/s 153A of the Act is bad in law. He relied on the judgement of jurisdictional High Court in the case of C. Ramaiah Reddy Vs. ACIT (339 ITR 210).
3.1 We have heard the rival submissions and perused the materials available on record. In this case, there was search u/s 132 of the Act on 26.8.2008. Consequently, notice u/s 153A of the Act dated 11.11.2009 was issued seeking assessee to file the return of income which was served to the assessee on 20.11.2009, consequent to which assessee filed a letter dated 8.9.2010 stating that the return filed u/s 139 of the Act on 13.11.2007 may be treated as return filed in response to notice u/s 153A of the Act. Now the contention of the Ld. A.R. is that the mandatory condition to issue notice u/s 153A of the Act were never fulfilled, as such, assessment to be quashed. In our opinion, the assessee not able to demonstrate how the condition laid down u/s 153A of the Act has not been fulfilled. More so, assessee is dis-entitled to agitate the issue with regard to the validity of the search proceedings in view of the amendment to section 132 of the Act by insertion of explanation by Finance Act, 2017 with retrospective effect from 1.4.1962, which reads as follows:-
“Explanation – 1: For the removal of doubts it is hereby declared that the reason to believe as recorded by income tax authorities under this sub-section shall not be disclosed to any person or any authority or the Appellate Tribunal.”
3.2 In view of the above retrospective amendment, we are inclined to hold that the assessee is precluded from challenging the validity of invoking jurisdiction u/s 153A of the Act. Accordingly, this ground of assessee is dismissed.
4. Next ground in assessee’s appeal in ITA No.108/Bang/2012 is with regard to sustaining addition of Rs.17.64 lakhs in respect of unproved debts in the case of Shri Raghunatha (Chaitanya Properties) out of Rs.57.11 lakhs.
4.1 The revenue is also in appeal before us on this issue in ITA No.108/Bang/2012 is with regard to the deletion of Rs.39.47 lakhs out of Rs.57.11 lakhs made by the AO towards unproved credits.
4.2 Facts of the case are that assessee shown an amount of Rs.57.11 lakhs as payable to Shri Raghunatha of Chaitanya Properties. The assessee furnished confirmation from Shri Raghunatha, which shows an amount of Rs.74.75 lakhs is due from assessee. Since there is a difference between confirmation filed from Shri Raghunatha and amount shown by assessee I.e. (Rs.74.75 lakhs – Rs.57.11 lakhs) at Rs.17.64 lakhs that amount has been sustained by Ld. CIT(A) as against Rs.57.11 lakhs addition made by AO. Against this, both the parties in appeal before us.
4.3 The Ld. A.R. submitted that the assessee owed a sum of Rs.57.11 lakhs to Mr. Raghunatha of Chaitanya Properties as on 31.3.2006. The assessee has produced the ledger extract of assessee’s account in the books of Mr. Raghunatha for verification by AO, which depicted a sum of Rs.74.75 lakhs as receivable from the assessee as against Rs.57.11 lakhs shown by the assessee in his books of accounts. The AO made addition of a sum of Rs.57.11 lakhs as bogus credit as the parties has not confirmed credits. According to the Ld. A.R., the assessee has furnished all necessary details and assessee’s books shows an amount of Rs.57.11 lakhs as payable to Mr. Raghunatha though Mr. Raghunatha’s books of accounts shown Rs.74.75 lakhs. According to the Ld. A.R., there is no reason to make an addition of Rs.17.64 lakhs being the difference between the amount due as per assessee’s books and that of Mr. Raghunatha’s books. Any entry other than the entry shown in the books of accounts of the assessee cannot be considered as unexplained entry in the hands of the present assessee u/s 68 of the Act. He submitted that lower authorities without verifying the genuineness of the transaction, the additions were made in the hands of the assessee and on this reason also, the department’s appeal on this issue to be dismissed.
4.4 On the other hand, Ld. D.R. submitted that the assessee has not explained the difference between the assessee’s books of accounts and books of accounts maintained by Mr. Raghunatha. Hence, the addition made by AO to be sustained.
4.5 We have heard the rival submissions and perused the materials available on record. In this case, assessee’s books of accounts shown the credit balance of Rs.57.11 lakhs in the name of Mr. Raghunatha of Chaitanya Properties as against this Mr. Raghunatha shown a sum of Rs.74.75 lakhs. Now the contention of the Ld. D.R. is that assessee has to explain at least the balance standing in his books of accounts in the name of Mr. Raghunatha at Rs.57.11 lakhs. It is to be noted that the creditor Mr. Raghunatha has confirmed the outstanding balance due to him from the assessee at Rs.74.75 lakhs. However, the contention of the Ld. D.R. is that the assessee has only explained Rs.17.64 lakhs out of Rs.57.11 lakhs. Hence, the addition of Rs.39.47 lakhs and the addition to be sustained. In our opinion, there is no merit in this argument of the Ld. A.R. There is no dispute that the confirmation given by Mr. Raghunatha of Chaitanya Properties shows an amount of Rs.74.75 lakhs. The Ld. CIT(A) deleted the addition of Rs.57.11 lakhs and treated only Rs.17.64 lakhs (Rs.74.75 lakhs – Rs.57.11 lakhs), which is over and above the amount shown by assessee in his books of accounts as unexplained credit. Primarily, u/s 68 of the Act, assessee has to explain any credits found in the books of accounts maintained by assessee in the previous year relevant to the assessment year concerned and assessee not required to explain the credits which are not appearing in his books of accounts. In other words, the assessee not required to explain the credits appearing in the books of accounts of some other party u/s 68 of the Act. In the present case, assessee has already explained the credits an amount of Rs.57.11 lakhs which is appearing in its books of accounts for which Ld. CIT(A) have no quarrel and he has accepted to that extent. He has sustained the addition over and above Rs.57.11 lakhs, which has appeared in the books of accounts of the creditors. In our opinion, Ld. CIT(A) not justified in sustaining addition of Rs.17.64 lakhs which is not appearing in the books of accounts of the assessee and which is appearing in the books of accounts of the creditors. Accordingly, we delete the addition of Rs.17.64 lakhs also sustained by the Ld. CIT(A).
4.6 Regarding the revenue appeal is with regard to allowing the relief of Rs.39.47 lakhs and sustaining only Rs.17.64 lakhs by Ld. CIT(A) (Rs.57.11 lakhs – Rs.17.64 lakhs = Rs.39.47 lakhs. Since we have allowed the appeal of the assessee in its appeal, the sustaining addition of Rs.17.64 lakhs), which is part and parcel of Rs.57.11 lakhs, for which the department cannot have grievance as this has been duly explained by the assessee by filing the necessary intimation or letters to the tune of Rs.74.75 lakhs out of which the assessee has duly explained credit of Rs.57.11 lakhs in his books of accounts. Being so, we do not find any infirmity in the order of Ld. CIT(A). Accordingly, the deletion of addition by Ld. CIT(A) is justified. This ground raised by the assessee is allowed and department is dismissed.
5. Next ground of appeal by assessee is with regard to the sustaining addition of Rs.51 lakhs in case of unproved loans from Mr. Rajendra (Neriga Land) out of Rs.1.75 crores made by AO. An amount of Rs.1.75 crores has been given by Shri Rajendra Runwal from the period 9.12.2005 to 4.2.2006 by different DDs and cheques drawn on Canara Bank, SBM, Bank of India and Ing Vysya Bank. The assessee shown total unsecured loans in the name of Shri Rajendra at Rs.2.26 crores. Out of this, assessee produced confirmation to the tune of Rs.1.75 crores from Shri Rajendra. Therefore, AO made addition of Rs.51 lakhs. The Ld. CIT(A) confirmed the same. Against this assessee is in appeal before us.
5.1 The contention of the Ld. A.R. is that Mr. Rajendra Runwal had paid to the assessee a sum of Rs.1.75 crores as advance towards sale of land at Neriga village on various dates during the assessment year under consideration and same was shown as a liability. The assessee repaid the same amount since the transactions were not materialized. The confirmation letter and ledger accounts were also furnished to the lower authorities for verification, which was kept on record in page 299 to 301 of paper book. It was further submitted that amount repayable to Mr. Rajendra as per assessee’s books as on 31.3.2006 is shown as Rs.2.26 crores instead of Rs.1.75 crores due to wrong credit entry being passed in Rajendra’s account in respect of some other parties account to whom flats were sold during the year. According to the Ld. A.R., the Ld. CIT(A) mentions that the same can only come as sale proceeds and not as a liability without appreciating the fact that the credit appearing in the account of Rajendra is on account of difference in group accounts. Thus, it is requested that difference in group accounts cannot be recorded as bogus credits in the facts of the case. Hence, addition confirmed to the tune of Rs.51 lakhs to be deleted.
5.2 The Ld. D.R. relied on the order of Ld. CIT(A).
5.3 We have heard the rival submissions and perused the materials available on record. It was brought to our notice that the following entries were wrongly shown as received from Mr. Rajendra Runwal instead of other parties.
