TMI Blog2011 (4) TMI 1343X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest bearing fund - If assessee is able to show the nexus that interest bearing funds or part thereof was given as advance on which assessee has earned interest, to that extent netting can be allowed. If assessee is not able to establish such nexus of interest bearing funds and advances on which assessee has earned interest netting will not be allowed and interest income to that extent would be taxed separately. This ground of assessee is, therefore, allowed but for statistical purposes. Regarding interest free advances - In our considered view this issue is also required to be examined afresh from the point of view of nexus. AO has to show that interest bearing funds were advanced as interest free to these partners. If it is so then rather taxing interest income, part of interest expenditure can be disallowed. But where assessee has sufficient personal capital or interest free funds then no such addition can be made. With these observations we restore this issue also to the file of AO. As a result, appeal filed by the assessee is partly allowed and partly allowed for statistical purposes. - Shri Bhavnesh Saini, JM and D.C.Agrawal, AM For the Appellant : Shri Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year through the brokers for the purchase of land for Model Town Park, Magob, Surat which is not recorded anywhere in the books of accounts of the assessee firm or its partners Rs.2,10,00,000/- Total Rs.10,00,00,000/- However, the assessee did not declare the said sum of ₹ 10 crores in the return of income nor paid taxes thereon. Notices u/s 142(1) were issued but there was no compliance. Thereafter notice u/s 148 was issued on 19.2.2009 to file return for this Asst. Year . The return of income was filed in response to above notice on 22.3.2009 declaring total income at Rs.NIL. The AO further noticed a remark by the auditor in para 3 of form No,3CD of audit report as under :- Assessee firm has declared ₹ 10 crores in the course of survey conducted u/s 133A under the Income-tax Act, 1961 on 19.09.2007 entry made in the books of accounts have been verified with reference to the statement recorded during the survey. The receipt of ₹ 10 crores by way of booking advance are represented against as revenue expenditure and assets. Thereafter the AO gave a detailed show cause notice to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons. They are summarised as under :- (1) The disclosure was made after satisfying himself by Shri Ravi Khandelwal from his records, notings in the diary and loose papers and it is stated that such disclosure is true and correct. Break up of above disclosure under various heads have also been given. (2) The disclosure made by the assessee has not been disputed and has not been retracted. (3) The assessee has incorrectly shown the above sum of ₹ 10 crores as advances in the books and has passed corresponding debit entries as investment made in WIPs etc. The assessee has thus by passing above entries nullified the effect of disclosure. (4) The assessee has, as per bifurcation given, shown a payment of ₹ 2.10 crores as on money for purchase of land which is not recorded in the books. Similarly, the disclosure of ₹ 5 crores and ₹ 2 crores being unaccounted investment in Model Town Park, Magob, Surat and expense has no relation with the advances as they are unaccounted investment on the date of survey. In any case the investment/expenditure incurred by the assessee has no co-relation with advance, if any. (5) What is declared by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IB(10) may kindly be directed to be allowed as profit derived from the housing project, as the appellant is eligible for deduction u/s 80IB(10) of the Act. This claim of the appellant is not sustainable as already held above the unaccounted income offered by the appellant is not the income from the regular books of account upto the date of the survey and, therefore, in the nature of deemed income against which, as seen in the earlier paras, no deduction or set off is allowable. Accordingly, the first ground of appeal is dismissed. 9. Against this order of ld. CIT(A), the ld. AR for the assessee submitted that - (1) In the statement recorded by authorised officers during the course of survey assessee has clearly stated that it has received on money against the booking of flats and it has been invested/spent in the manner whose details are also given by the assessee. (2) Thus assessee has given the source of expenditure/investment which is the receipt of on money against booking of flats. (3) The statement of Shri Ravi Khandelwal should not be read in isolation and entire statement should be read as a whole. Then it would be clear that on one hand Shri Ravi Khande ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eque amount in the year when sales of the flats are made but tax on money in one go in Asst. Year 2008-09 merely on the basis of statement given by the partner Shri Ravi Khandelwal as legally it cannot be done so. Shri Ravi Khandelwal was not aware about the correct legal position as to when such on money should be taxed. He was under lot of mental pressure due to survey and could not realize as to when this amount should be legally offered for taxation and when it should be legally assessed. (9) Once assessee has offered the same in the year when revenue accrued, it should not be again taxed in Asst. Year 2008-09 as it will amount to double taxation. 10. Against this, the ld. DR submitted that it is the assessee who himself declared the sum as his income for Asst. Year 2008-09 in the statement recorded during the course of survey on 19.9.2007 and he has not retracted this statement then assessee should not be allowed to revert back and say that it would not be taxable now in Asst. Year 2008-09 but would be taxable in Asst. Year 2009-10 or 2010-11 when flats were allegedly sold. The ld. DR referred to the statement of Shri Ravi Khandelwal and in particular question no.26, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omise to pay the tax along with interest on the unaccounted income which is disclosed by us in the form of receipts investment for the FY 2007-08 (Asst. Year 2008-09). Q.28 : You have given answer in response to Q.No.27. Either again clarify and disclose the details or completely explain it? A.28: In answer 27, I have stated that I accepted the unaccounted income earned in year 2007-08 by M/s D.R. Construction, after consulting my father Shri Vishwanath Khandelwal and others. In this regard, we disclose that whatever papers are being impounded have been seen by us, totaled by us and even on totaling and understanding the different items shown in the paper which is of our Model Town Park which is being constructed by M/s D.R. Construction. In this project, whatever investment and stock on site is their and the on-money taken from buyers (which has not been disclosed in the books) aggregates to ₹ 10,00,00,000/- (10 crores) which is over and above the regular or different from the regular income of Ms D.R. Construction for FY 2007- 08 (Asst. Year 2008-09). We have accepted in answer 27 and its disclosure is as under Unaccounted investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant has, however, not shown the disclosure amount as income in the return of income filed for the year under consideration on the ground that the above amount has been shown as advances in the books of a/c. and corresponding debit entries have been made to the WIP a/c. The appellant s submission is that ₹ 10 crores is included in the booking advances of ₹ 11,74,81,450/- shown in the balance-sheet as on 31.3.2009 and is also included in the construction, administrative and other expenses aggregating to ₹ 12,95,73,503/-, which have been transferred to the WIP a/c. The appellant has, thus, by passing the above entries in the books of a/c post survey, nullified the effect of disclosure of income of ₹ 10 crores made during the course of survey. The moot question arising, therefore, is whether the income offered by the appellant at the time of survey can be shown as advances received from the customers and taken to WIP a/c. by making corresponding debits under various expense heads. It is seen that out of ₹ 10 crores of disclosure made, ₹ 2.10 crores only related to payment of on money made in cash during the year through the brokers for purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be allowed as a deduction under any head of the income. It is also relevant to note that the income offered by the appellant as unaccounted income during the course of survey is in the nature of deemed income . The issue of head of deemed income u/s 69, 69A, 69B and 69C has since been considered on first principles in the Gujarat High Court decision in the case of Fakir Mohamed Haji Hasan vs. CIT (2001) 247 ITR 290 (Huj). (4) On the basis of decision of Hon. Gujarat High Court in the case of Fakir Mohamed Haji Hasan vs. CIT (supra) the ld. DR submitted that by virtue of deeming provisions of section 68, 69, 69A, 69B 69C the expenditure incurred by the assessee as admitted by him in the statement recorded u/s 133A will not form part of book profit but would be taxed as deemed income separately. He also emphasized upon the observation of the Hon. Court from that judgment as referred to by ld. CIT(A) on pages 20 21 of his order. (5) The ld. DR further pointed out that in view of above decision of Hon. Gujarat High Court, the expenditure so incurred by the assessee outside the books would be deemed income and no other expenditure would be allowed as set off against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce of unaccounted expenditure should be treated as not satisfactorily explained and thus covered by section 69C. (9) It is not believable as claimed by the assessee that he would have received on money from 130 persons. Assessee is only trying to give twist to the case and avoiding to pay taxes on accounted expenditure of ₹ 10 crores. (10) Finally the ld. DR summarised his arguments saying that - (i) That there is an unequivocal disclosure of income in Asst. Year 2008-09 in terms of unaccounted expenditure. (ii) No detail as to how disclosure represented in various assets is given. (iii) Statement is not retracted which still stands. (iv) Not offering disclosure amount as on money, now, is only an after thought. (v) The certificate of auditor is self serving and cannot be relied upon that sum of ₹ 10 crores is on money. (vi) Stand of ld. CIT(A) that this sum is taxable u/s 69C is correct. (vii) It is not possible to collect sum of ₹ 10 crores from 130 persons. No details of such persons are given. (viii) Apparently the date of application of money is earlier as compared to date of collection. (ix) If sum of ₹ 10 crores is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though partner of the assessee firm has stated that it is his income for Asst. Year 2008-09 but he is talking in terms of receipt and he is not expected to understand it in legal sense. If assessee has right to revise a return and then assessee has also a right to revise his statement wrongly given that it is income for Asst. Year 2008-09. A legal mistake done by the assessee can always be rectified. 12. We have considered the rival submissions and perused the material on record. Undisputed facts of the case are that during the course of survey Shri Ravi Khandelwal partner of the firm has stated as per translation of statement referred to above, that he has received on money on booking of flats which has been spent as per details given above. Both the elements i.e. receipt of on money and incurring of expenditure/investment are stated in the statement. Revenue is relying merely on one part of the statement that assessee has made unaccounted investment and, therefore, it should be taxed u/s 69C whereas assessee is emphasizing that expenditure is only out of on money. The statement is not retracted. Shri Ravi Khandelwal has also stated that sum of ₹ 10 crores is his inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales consideration as per document (Rs.) 89485405 36525340 126010745 4 Proportionate booking advance out of disclosure of ₹ 10 crores (Rs.) 41868899 1,82,09,630 6,00,78,529 5 Total sales 131354304 54734970 186089274 Further we also notice that even though Revenue has heavily relied upon the statement of Shri Ravi Khandelwal but documents which would have reflected expenditure or receipt of on money and which is claimed to be the basis for disclosure is not provided to us. Even the assessee has alleged that copy of such document is not provided to him. Therefore, it is not proved that any statement given by the assessee is supported by any material evidence in the form of loose paper etc. which is claimed to be found during the survey. If there were such documents Revenue should have produced them before us so as to strengthen the disclosure made in the statement. 13. In our considered view if assessment has to be framed entirely on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding receipt of on money is not acceptable and hence rejected. 14. Once what is to be taxed is on money then it has to be examined when can it be taxed. Whether it can be taxed in Asst. Year 2008-09 on the basis of statement of Shri Ravi Khandelwal alone? In our considered view the statement that on money is income is a generic form of saying receipt as income and not in the sense of true interpretation of the term income as per I.T. Act. On money as such cannot be taxed alone unless it is proved that all the expenditure incurred on the project was recorded in the books of account and on money component was over and above the receipts recorded in the books. No such evidence has been furnished. To the contrary it is undisputed position that out of this on money assessee has incurred various expenditure/investment. Therefore, on money as such and as a whole cannot be taxed over and above the income accruing on the basis of entries recorded in the books of account. From this it follows that on money has to be treated as revenue receipt and not purely income. The explanation of the ld. AR in this regard has to be accepted which is also supported by the statement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores against sale of 149 flats/shops and of ₹ 1,82,09,630/- against sale of 55 flats/shops. The revenue is accordingly recognized only when flats/shops are sold and, therefore, both cheque portion/cash portion being the on money would accrue to the assessee in the year when flats/shops are sold. Therefore, in no way sum of ₹ 10 crores as a whole can be taxed in Asst. Year 2008-09 on the basis of expenditure as deemed income u/s 69C. 16. Now we discuss certain authorities referred to by the parties. (1) The ld. DR has relied on the decision of Hon. Punjab Haryana High Court in the case of National Legguard Works vs. CIT(A) Anr. (2007) 288 ITR 18 (P H). In this case income was surrendered during the course of survey following the detection of unexplained stock. Assessee sought to treat such income as income from exports and claimed deduction u/s 80 HHC. On the basis of this judgment ld. DR sought to argue that assessee would not be entitled to deduction u/s 80IB on such unaccounted receipt of on money representing unaccounted expenditure/investment. In our considered view the issue whether assessee would be entitled to deduction u/s 80IB on the disclosed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as considered. We have already held above that as provisions of section 69C are not applicable therefore, the ratio of this decision cannot be considered. (7) CIT vs. Ashaland Corporation (1982) 133 ITR 55 (Guj). In this judgment Hon. Gujarat High Court has held that income accrues on sale of land and arises in the year in which the title in the property is transferred and not in the year in which assessee received part of consideration and earnest money. Business of that assessee was to purchase and sale of land. The transaction of sale of land becomes complete only on possessing of title which takes place only when registered deed is executed. Some receipt of earnest money and advance receipt of money towards transaction would not by itself partake the character of taxable income as the registered sale deed was executed only in the subsequent year. In this regard we refer to following head notes from that judgment:- The land purchased by the assessee which forms part of its stock-intrade, would continue to be so, until and unless it sells it. The business deal in respect of the land would be complete only when the assessee executed a sale deed. Since it was only on comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2002) 254 ITR 175 (Mad) Hon. Madras High Court held that capital gain would accrue in the year in which sale deed was executed. Hon. Andhra Pradesh High Court in CIT vs. Nawab Mahmood Jung Bahadur (1988) 172 ITR 592 held that capital gain would arise on transfer of asset liable to be taxed for the year in which transfer took place. Hon. Gujarat High Court in CIT vs. Mormasji Mancharji Vaid (2001) 250 ITR 542 (Guj) held that transfer of immovable property is effected on the date of execution of transfer deed and registration of transfer deed is effected from the date of execution. From these authorities it follows that there should be an immovable property in existence and transfer deed is executed which is later registered. Thus capital gain would accrue or arise only when transfer deed is executed. In the present case assessee is dealing in several immovable property i.e. flats and shops which he has constructed. A single flat is a capital asset for the purchaser but for the assessee all the flats together constitute stock-in-trade. As assessee is dealing in capital asset, as stock-in-trade, the basic principle of accrual of income will remain the same i.e. profit on sale of flat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such receipt (on money in the present case) cannot be dissected from other part of receipt through banking channels as both are integral part of sale consideration. If the amount given by cheque carries the character as an advance against sale consideration then on money in cash will also carry the same character. Both types of receipts i.e. receipt through cheques and receipt through cash as on money will arise as income to the assessee as soon as transfer of immovable property is executed and not before, or possession thereof is handed over and for this it is necessary that such immovable property should be in existence. Therefore, we are of the considered that on money received by the assessee did not have the character of income but was only an advance like the one received through cheque. Both will become part of the sale consideration to the assessee simultaneously on either handing over the possession of the flats or on execution of transfer deed whichever happens earlier. 18. Thus on the basis of above judgments we hold that advance money received either by way of cheque or by way of cash will partake the character of taxable income when registered sale deed of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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