2022 (1) TMI 477 - AT - Income Tax

Addition of on-money received on sale of shops in the JEM Complex - evidence of On- money found of cloud data - CIT-A deleted the addition - AR submitted that in search of the assessee no document or material was found to indicate that the assessee has received any on money on sale of the shops/office at JEM Project and addition has been made on the basis of the alleged tally data found from the premises of MBDL - HELD THAT - We find that pursuant to search action in case of M/s Manglam Group and where the assessee s premises were also searched the action was taken in the hands of the assessee u/s 153A of the Act based on transactions in N Trading Company found on cloud data found and seized during the course of search at the office premises of M/s MBDL and the assessment was completed u/s 143(3) r/w 153A wherein addition on account of on money found in N Trading Company cloud data relating to JEM project were made by the Assessing officer. On appeal by the assessee CIT(A) while adjudicating the merits of the case and which are under challenge before us has again recorded a similar findings as recorded by the Coordinate Benches in SHRI JUGAL KISHORE GARG (DEREWALA) 2021 (5) TMI 814 - ITAT JAIPUR that M/s Manglam Builder Developer Ltd had owned up all the N Trading Company data found in cloud as belonging to them and basis the same it filed settlement petition before Settlement Commission on 28.03.2018 and the On money receipts relating to various real estate projects Pertaining to JEM project has been declared by MBDL and after considering the expenditure incurred MBDL has offered additional income of Rs. 72.32 cr before the Settlement Commission and which has been accepted by the Settlement Commission in its order dated 16.05.2019 and accordingly where on-money received in JEM project belong to MBDL and MBDL has offered the same which has been accepted and no evidence was found in search to indicate that the appellant has received any share in on-money the AO was directed to delete the additions in the hands of the assessee. We therefore find that the facts of the aforesaid case are pari-materia arising out of same search action on M/s Manglam Group and same set of data in form of N trading Company found in cloud data which has formed the basis of addition in the aforesaid case and the matter has already been examined by the Coordinate Jaipur Benches basis the filings and acceptance of MBDL s petition before the Settlement Commission and the addition has been deleted. The Revenue has not been able to highlight and demonstrate before us as to how the findings of the Coordinate Benches should not be followed in the instant case. Addition so made in the hands of the assessee is hereby held to be rightly deleted by the ld CIT(A) and we hereby affirm his findings in this regard and the grounds of appeal so taken by the Revenue are thus dismissed.

Summary

Issues Involved:

1. Justification of deleting the addition of Rs. 1,90,08,157/- on account of "On-money."
2. Justification of deleting the addition of Rs. 3,65,421/- on account of disallowance of indexation cost.
3. Classification of shops sold as capital assets instead of stock in trade.
4. Relevance of entries found in N Trading cloud data for "On-money."
5. Impact of Manglam Group owning up the entire entries in the N Trading cloud data before the Hon’ble ITSC.

Detailed Analysis:

1. Justification of deleting the addition of Rs. 1,90,08,157/- on account of "On-money":

The Revenue challenged the deletion of Rs. 1,90,08,157/- added by the AO based on "On-money" transactions found in the N Trading cloud data. The AO argued that the data indicated the assessee received "On-money" on the JEM project. However, the CIT(A) deleted the addition, noting that no document or material was found during the search of the assessee to indicate receipt of "On-money." The CIT(A) emphasized that the data was seized from MBDL’s premises, not from the assessee, and MBDL had owned up the data before the Settlement Commission, which had accepted their petition. The Tribunal upheld the CIT(A)’s decision, agreeing that the "On-money" belonged to MBDL and had already been taxed in their hands, thus preventing double taxation.

2. Justification of deleting the addition of Rs. 3,65,421/- on account of disallowance of indexation cost:

The Revenue contended that the asset sold was stock in trade, not a capital asset, and thus the addition of Rs. 3,65,421/- on account of disallowance of indexation cost was justified. The CIT(A) disagreed, treating the shops sold as capital assets. The Tribunal supported the CIT(A)’s view, noting that the assessee was a landowner and not involved in the day-to-day operations of the project, thus considering the shops as capital assets.

3. Classification of shops sold as capital assets instead of stock in trade:

The Revenue argued that the shops sold should be treated as stock in trade. The CIT(A) treated them as capital assets, a stance upheld by the Tribunal. The Tribunal noted that the assessee’s involvement was limited to owning the land, with MBDL handling all development and sales activities. Therefore, the shops were rightly classified as capital assets.

4. Relevance of entries found in N Trading cloud data for "On-money":

The AO relied on N Trading cloud data seized from MBDL’s premises to make additions for "On-money." The CIT(A) and the Tribunal found this approach flawed, as the data was not seized from the assessee, and MBDL had already owned up and settled the "On-money" receipts with the Settlement Commission. The Tribunal emphasized that no evidence was found during the search of the assessee to indicate receipt of "On-money."

5. Impact of Manglam Group owning up the entire entries in the N Trading cloud data before the Hon’ble ITSC:

The CIT(A) and the Tribunal gave significant weight to MBDL’s ownership of the N Trading cloud data and their settlement with the ITSC. They noted that the Settlement Commission had accepted MBDL’s petition, which included the "On-money" receipts. The Tribunal highlighted that taxing the same "On-money" in the hands of the assessee would result in double taxation, which is not permissible. The Tribunal also referenced a similar case (Sh. Jugal Kishore Garg) where the addition based on the same cloud data was deleted, reinforcing the principle of consistency.

Conclusion:

The Tribunal dismissed the Revenue’s appeals, affirming the CIT(A)’s decisions to delete the additions. The Tribunal emphasized the lack of direct evidence against the assessee, the ownership and settlement of the "On-money" by MBDL, and the principle of avoiding double taxation. The findings were consistent with previous Tribunal decisions under similar circumstances.