2012 (8) TMI 238 - HC - Income Tax

Treatment of unutilized balance available in consumer deposit account - AO added the unutilized balance of such account to the total income of the assessee - Held that - Considering the sale agreement produced by the assessee shows that these amounts are not the part of the total sales consideration and also the balance sheet disclosing how the amounts were treated as liability in the books of accounts - the customer deposit accounts are with respect to various services in the apartments like power connection water connection Cable TV connection etc which are necessarily to be taken out by the individual owners of the apartment after the respective apartments are certified fit for occupation by the local authority - pointing of assessee to the fact that after utilization what remains is refunded completely to the customers the issue requires a second look at the hands of the AO - issue is thus remanded back to the AO for fresh consideration

Summary

Issues:
Appeal against Income-tax Appellate Tribunal orders for assessment years 2005-06 and 2006-07. Dispute over treating outstanding amounts in "consumer deposit account" as income.

Analysis:
The appellant, a builder, challenged the assessments under Section 143(2) of the Income Tax Act, 1961, following a search in their business premises. The Assessing Officer added unutilized balances in the customer deposit account to the total income, considering it as business income, despite the appellant's argument that these deposits were not treated as income. The Tribunal remanded the matter for certain heads but confirmed the addition on others.

The agreements with clients showed that the deposit amounts were not part of sales consideration but for services like power and water connections in apartments. The builder undertook these arrangements for customer convenience and competition reasons, with customers responsible for statutory fees. The Tribunal reversed the first appellate authority's decision, resulting in conflicting findings.

The purpose of amounts received, their utilization, and refund status were crucial. The assessment order detailed projects and outstanding balances, with instances of full refunds after utilization. The issue required reassessment by the Assessing Officer, given the facts presented.

The High Court allowed the appeals, setting aside lower authorities' orders and remanding the issue to the Assessing Officer for fresh consideration. The appellant was directed to provide a certified copy of the judgment for the reassessment, ensuring all relevant materials are presented and a personal hearing opportunity is granted. The matter was to be expedited for resolution.