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Mr. M. Suveer Reddy Versus DCIT, Central Circle-2, Hyderabad

2016 (1) TMI 175 - ITAT HYDERABAD

Estimation of income at 8% - Held that:- A.O. could not reject the books of account and estimate the income at 8%, without there being any basis in doing so. In view of the above, we agree with assessees grounds on the issue and delete the estimation of income as made out by the A.O. It is also seen that in A.Y. 2005-06 assessee declared income at more than 8%. As assessee’s business income varies on year to year basis and the assessee is disclosing the incomes on the basis of the entries in the .....

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d by the assessees on the basis of receipt in respective assessment years, ignoring that if it is a capital gain transaction on transfer of property, the capital gains occurs when the transfer is complete or deemed to be complete. If the terms of agreement have been fulfilled by the developer/ builder, the capital gain is to be brought to tax in the year in which the agreement was concluded i.e., in this case in the year 2007-08. In case the terms of the agreement are not fulfilled and the agree .....

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n different assessment years, they cannot be brought to tax on receipt basis without understanding the nature of payments. In view of this, without giving any findings on the respective contentions, we are of the opinion that these issues are to be examined in detail to arrive at proper conclusions. Therefore, in the interest of both parties, we restore the issue to the file of A.O. to re-examine

The contention that agreement has not been fulfilled because no permissions have been rec .....

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3, 1016/H/2013, 1017/H/2013 - Dated:- 13-11-2015 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Mr. S. Rama Rao For The Revenue : Mr. M. Sitaram ORDER PER BENCH : These seven appeals are by the above two assessees against the common order of the Ld. CIT(A) dated 28.02.2013 in respective assessee s cases. Both these Assessees have raised various grounds for the A.Ys. 2004-05 to 2009-10 inter alia, contesting application of provisions of secti .....

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containing various agreements and documents as placed before the authorities. 3. Briefly stated, assessees herein are individuals and have jointly entered into an agreement of sale/ purchase on 28.12.1997 with Mr. C. Kishanram Gouli of Secunderabad for purchase of schedule property in Sy.No.1 and 2 admeasuring ac.56.04 gts at Lothkunta (v), Malkajgiri (M), Ranga Reddy District at ₹ 10 lakhs per acre. Out of the total consideration of ₹ 5.61 crores to be paid, they have paid an amount .....

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ing third party would pay ₹ 4 crores to the first party i.e., land owners and both parties i.e., land owners being first party and consenting parties being second party the register 57% of the land to the third party. Balance of ₹ 1 crore was to be paid at the time of obtaining sanction from concerned authorities. There were other terms of agreement also which would indicate that constructed area would be devolving on third party/second party and first party would not have any rights .....

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rch material indicated that the assessee Mr. BL Shankarlal Yadav has received an amount of ₹ 1,01,00,800 in financial year relevant to A.Y. 2007-08 and ₹ 56,97,391 in financial year relevant to A.Y. 2009- 10 and these amounts were brought to tax by the A.O. as the commission in the transaction. Mr. M. Suveer Reddy, being an electrical contractor as well, also received an amount of ₹ 50 lakhs in financial year relevant to A.Y. 2007-08 and ₹ 45,63,000 in financial year rele .....

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erence to the estimation of income at 8% on the turnover in respective assessment years in the case of Mr. M. Suveer Reddy for which assessee contends that there is no incriminating material and the returns originally filed in respective years have been accepted and became final. The other issue is with reference to the so-called amounts received from SSCPL by Mr. BL Shankarlal Yadav and Mr. M. Suveer Reddy which were brought to tax in the year of receipt as commission in the transactions. These .....

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ducted in the premises of SSCPL and so assessee s incomes which were originally disclosed on the basis of books of account could not be rejected in the absence of any incriminating material. Ld. Counsel relied on the decision of Hon ble Delhi High Court in the case of CIT vs. Kabul Chawla dated 28th August, 2015 in support of his contention that additions cannot be made arbitrarily and without any relevance or nexus with the seized material. 5.1 Ld. D.R. in reply, relied on the judgment of the H .....

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siness is concerned, there were no search and seizure operations in assessee s premises and 153C proceedings were initiated only on the basis of certain incriminating material available in the business premises of SSCPL. Even though jurisdictional High Court in the case of Gopal Lal Bhadruka (supra) has examined the jurisdiction of the A.O. in completing the assessments under section 153A, what is relevant is that A.O. could take into consideration material, other than what was available during .....

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the notice period for scrutiny was over and assessee s returns were accepted. In this case, there is no other material other than the return filed by the assessee in time, in various assessment years. Therefore, even applying the principles laid down by the Hon ble jurisdictional High Court in the case of Gopal Lal Bhadruka (supra), A.O. could not re-visit the incomes already got concluded in the original return. The principles governing the jurisdiction under section 153A was summarized by the .....

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six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AY s will have to be computed by the AOs as a fresh exercise. iii. The A.O. will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementi .....

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d, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and th .....

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n the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 6.1. Considering the principles laid down by the Hon ble Delhi High Court, we are of the view that the A.O. could not reject the books of account and estimate the income at 8%, without there being any basis in doing so. I .....

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mind and principles of law, we cannot approve the rejection of books of account and estimation of income in the impugned assessment years. Assessee grounds are allowed. II. ADDITIONS ON THE BASIS OF RECEIPTS FROM M/s. SSCPL: 7. As briefly stated above, assessees have entered into a purchase agreement with Mr. Kishanram Gouli on 28.12.1997 and paid an advance of ₹ 20 lakhs out of the total consideration payable at ₹ 5.61 crores. However, subsequently, a development agreement -cum- GPA .....

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time of obtaining sanction. We are not here to examine the terms of agreement and how it is to be considered for the purpose of assessment either in the hands of the owners or in the hands of the developer. It is the A.O s contention that assessee do not have any rights on the property and the amounts received being consenting parties from SSCPL is to be brought to tax on the basis of the receipt in respective years as commission in the transaction. Assessees contended before the Ld. CIT(A) tha .....

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y implemented as the relevant sanctions from the concerned authorities have not been obtained and virtually there is no development on the property, after payment of initial amounts. It was submitted that the amounts received are to be considered as part of capital gains as and when complete transfer takes place. It was the submission that Revenue did not analyse the nature of transaction and wrongly brought the amount to tax in the year of receipt as commission, even though the parties herein h .....

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s part of the consideration as agreed in the agreement or over and above the amounts payable as per the agreement, Ld. D.R. stated that these amounts are over and above the agreed amounts. The Bench also enquired whether there exist any evidence that agreements are not completed or fulfilled, as the transfer would be complete upon entering the agreement and fulfilling conditions therein as held by the jurisdictional High Court in the case of Potla Nageswara Rao 365 ITR 249 (A.P.). 10. Ld. Counse .....

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ty way back in 1997 and paid advance of ₹ 20 lakhs. Mr. BL Shankarlal Yadav is not maintaining proper books of account whereas, Mr. M. Suveer Reddy is maintaining books of account, as he is in the business as electrical contractor. However, it was fairly admitted that this advance of ₹ 20 lakhs paid in 1997 as per the agreement of sale was not reflected in the business- balance sheet of assessee, Mr. M. Suveer Reddy. It is one of the contentions that the amount received by the assess .....

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ng a lien for purchase of property from the owner(s). The entire payment made by SSCPL was neither examined nor brought on record by the A.O. in order to examine this aspect. It is also surprising to note that Revenue has not considered whether the transaction is to be considered as one involved capital gain or involving business transaction. Assessees herein have entered into an agreement for purchase of property may be for the purpose of investment or may be for the purpose of business activit .....

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the capital gain to tax and whether amounts received by assessees are part of transfer of property being transfer of rights, there is no clarity from either parties. What A.O. has done in the assessment is to bring to tax the amounts received by the assessees on the basis of receipt in respective assessment years, ignoring that if it is a capital gain transaction on transfer of property, the capital gains occurs when the transfer is complete or deemed to be complete. If the terms of agreement ha .....

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mount of ₹ 20 lakhs at the time of agreement as initial payment which will be a deduction, along with subsequent expenditure if any, so as to arrive at the correct income. Just because the parties herein have received certain amounts in different assessment years, they cannot be brought to tax on receipt basis without understanding the nature of payments. In view of this, without giving any findings on the respective contentions, we are of the opinion that these issues are to be examined i .....

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