Case Law Details
Brief of the Case
In the present facts of the case the Hon’ble Tribunal held that whenever the consideration is received in advance for the particular sale, The money will be taxed in the year in which the sale is made and not in the assessment year in which the advances are received. Therefore, no penalty could be levied u/s 271(1)(c).
Facts of the Case
The assessee is a partnership firm engaged in the business of building construction. A search action u/s.132 of the I.T. Act was carried out at the business and residence premises. Simultaneously, the factory premises and residence of other business concerns of brothers and the close associates were covered either in search u/s.132 or survey u/s.133A.
During the course of assessment proceedings, the AO noted that during the search documentary evidence of cash receipt of Rs.25 lakhs was found and seized. The statement of partner of the assessee firm was recorded u/s.132(4) of I.T. Act, 1961 on 24-09-2004. In the said statement he had stated that these are the cash receipts related to booking advance for shops of Nath Plaza received from various customers and has agreed to offer Rs.25,00,000/- as income. However, the assessee did not offer these receipts in the income-tax return filed in response to notice u/s.153A. The, entire amount of Rs.25 lakhs was received on 21-05-2002, therefore, the AO held that this unrecorded, unaccounted cash receipts amounting to Rs.25 lakhs were taxable in the F.Y. 2002-03. He accordingly made an addition of Rs.25 lakhs to the total income of the assessee on account of unaccounted cash receipts. The penalty proceedings were initiated u/s 271(c).
Held by CIT(A)
The Ld.CIT(A) cancelled the penalty on the basis of arguments made by the assessee that the amount of Rs.25 lakhs represents booking advance for shops at Nath Plaza received from various customers will accrue to the assessee on such advances only in the year of sale. The profit on sale of the said shops is taxable in the subsequent years and not in the year under appeal. Accordingly, the penalty was deleted.
Contentions of the Assessee
The ld. Counsel for the assessee contended that the show cause notice issued by the AO does not give any particulars of alleged concealed income nor its assessment order anywhere says that the assessee has concealed income of Rs.25 lakhs. It was submitted that for attracting penalty for concealing income there has to be a malafide intention. It was further submitted that in view of clause 2 of Explanation 5 to section 271(1)(c) the assessee is entitled to immunity from the penalty for concealment. The assessee further argued that the amount of Rs.25 lakhs represents booking advance for shops at Nath Plaza received from various customers which have not been recorded in the books of account. It was submitted that advance received in respect of proposed sale of shops cannot be taxed in the year of receipt itself but the income is to be taxed in the year in which the shops are sold.
The Ld. Counsel for the assessee before the Tribunal mentioned that the question that arises is as to whether the amount of Rs.25 lakhs is the income of the assessee for the impugned assessment year 2003-04. He submitted that the amount of Rs.25 lakhs for which the documents were found during the course of search in fact refers to the advance received for sale of flats which was sold in subsequent assessment years. Referring to the profit and loss account in the subsequent assessment years he tried to explain that the sale proceeds which included cash receipts as well as cheque receipts have been reflected in the relevant profit and loss account. Referring to the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Karda Construction Pvt. Ltd. vide ITA No.1960/2012 order dated 25-02-2013 the Ld. Counsel for the assessee submitted that the Hon’ble High Court in the said decision has held that profit has to be computed only in the year of sale and not on the basis of advance received which were not recorded in the books of account. The Ld. Counsel for the assessee submitted that cash receipts from different persons are in the form of booking advances and the shops were sold in subsequent assessment years. Therefore, penalty u/s.271(1)(c) cannot be levied in the impugned assessment year since the assessee has not earned any income out of such booking advance received for sale of shops.
Referring to the decision of the Pune Bench of the Tribunal in the case of ITO Vs. Vijaya Builders vide ITA Nos. 1605 and 1606/PN/2012 he submitted that under identical facts and circumstances the penalty was levied by the AO and deleted by the CIT(A) which was upheld by the Tribunal and the appeal filed by the Revenue was dismissed.
Contention of the Revenue
The ld. Counsel for the Revenue contended that during the search documentary evidence of cash receipts have been found. These cash receipts have not been recorded in the books of account of the assessee and therefore these receipts are undisclosed. It is not acceptable that advances are not taxable and only income is taxable. However, this applies only to the advances accounted for in the books of accounts. When the advances are not accounted in the books of account, it becomes the income of the assessee over and above the disclosed income. The receipts are to be taxed in the year of receipt only. He accordingly submitted that order of Ld.CIT(A) be reversed and that of the AO be restored.
Held by the Tribunal
The Hon’ble Tribunal observed that according to CIT(A) these booking advances cannot form part of the total income of the assessee and therefore penalty is not leviable u/s.271(1)(c) of the I.T. Act. The Hon’ble Tribunal found merit in the submission of the Ld. Counsel for the assessee that no income has accrued to the assessee on account of such unaccounted cash receipts and the assessee has accounted for the cash receipts in subsequent years when the shops were sold. He also clarified that since these are unaccounted receipts the same has not entered into the books of account but the fact remains that the cash receipts were disclosed in the subsequent years along with cheque receipt and profit has been offered to tax.
Further it was observed that the unaccounted cash receipt of Rs.25 lakhs will form part of the sale consideration of the flats sold by the assessee in the year when the sale has taken place. Therefore, the income has not accrued to the assessee during the impugned assessment year and therefore no penalty u/s.271(1)(c) of the I.T. Act can be levied. The Hon’ble Tribunal also took into consideration the Judgemnt of Pune Bench of the Tribunal in the case of ITO Vs. M/s.Vijaya Builders vide ITA Nos.1605 and 1606/PN/2012 order dated 25-11-2013 where penalty was levied u/s.271(1)(c) on the basis of on-money received by the assessee from various customers which was shown as advance received in the balance sheet. The Ld.CIT(A) deleted the penalty u/s.271(1)(c) of the I.T. Act holding that the on-money received by the assessee cannot be the income of the assessee of the said year. The Tribunal upheld the order of the CIT(A). Accordingly, the Appeals filed by the Revenue were dismissed.
