TMI Blog2017 (6) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... y the revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different stand and that too, without hearing the assessee Apart from the above, the ld.CIT(A) has deleted the addition on the ground that same amount cannot be taxed twice because this very amount has been offered for taxation in different years and the same rate of tax is applicable upon the assessee. Thus, taking into consideration well reasoned finding of the ld.CIT(A) extracted (supra), we do not see any reasons to interfere in it. Appeal of the Revenue is devoid of any merit, hence dismissed. - ITA No.2720/Ahd/2014 - - - Dated:- 1-6-2017 - SHRI RAJPAL YADAV, JUDICIAL MEMBER, AND AMARJIT SINGH, ACCOUNTANT MEMBER For The Revenue : Shri S.T.Bichari, CIT-DR For The Assessee : Shri Dennis Chokshi, AR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Revenue is in appeal before the Tribunal against the order of the ld.CIT(A)-I, Surat dated 21.7.2014 passed for the Asstt.Year 2011-12. 2. Revenue has taken six grounds of appeal, which are not in consonance with Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead as a whole. This disclosure is made in reply to question no.5 and the partner has specifically deposed that these amounts would be subject to registration of the sale deed. In other words, the income in these amounts would be recognized when the sale deed would be executed or possession will be delivered to the prospective buyers. The partner has specifically replied to this effect. The assessee has offered income of ₹ 26.05 crores in different assessment years in different projects. It has paid taxes. The assessee has submitted break-up of the income in different assessment years for different projects. Somehow, the ld.AO was not satisfied with the explanation of the assessee, and therefore, rejected book results of the assessee and added differential amounts. Brief discussion made by the AO in concluding paragraphs reads as under: 11.1. Once the seller has transferred all the significant risks and rewards of ownership to the buyer and other conditions for recognition of revenue specified in paragraphs 10 and 11 of AS 9 are satisfied, any further acts on the real estate performed by the seller are, in substance, performed on behalf of the buyer. On perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o placed reliance on photographs of the project as! on 31/3/2011 alleged to have been taken by an independent authority. However, this argument does not carry too much weight as booking of a particular project takes place on its launch itself. It is by virtue of this that the assessee has been in a position; to quantify the amount of on money received from each project enumerated above offer undisclosed income to the tune of ₹ 26.05 crores for FY 2010-11 relevant to 2011-12. 14. The assessee has also made a contention that no capital was created and there was no income application in the current year in excess of income disclosed | of ₹ 1,14,55,933/- pertaining to the current year. It is well-settled that income attracts tax as soon as it accrues. The application or destination of the income has nothing to (do with its accrual or taxability. In other words, income-tax is attracted when the income; is earned. Taxability of income is not dependent upon its destination or the manner of its utilization. It has to be seen whether at the point of accrual, the amount is of revenue nature. If so, the amount will have to be taxed- Tuticorin Alkali Chemicals Fertilizers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which was made part of the disclosure, Hence, the books of account of the assessee are incorrect. 15.4 The provisions of section 145(3) of the Income Tax Act are clearly applicable in case of the assessee as the assessee has failed to satisfactorily explain and establish the correctness of the accounts. 15.5 In light of the above, the books of accounts maintained by the assessee are being treated to be unreliable and incorrect. The provisions of section 145(3) are applied to the present case. 15.6 Hence, the income of ₹ 24,90,44,067/- has escaped assessment during the year under consideration. 15.7 Thus, from the above discussion, it is evident that the assessee has furnished in accurate particulars by suppressing and under reporting the income. The ensuing income has been under reported by this furnishing of inaccurate particulars and enhance there has been result in concealment of income, therefore, satisfied on account of these reasons as above, penalty proceedings u/s.271(1)(c) are being initiated for furnishing in accurate particular income and thereby leading to concealment of income. In Nutshell: Survey was conducted on the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,00,000/- Assessed Income 27,72,25,227/- Assessed under section 144 r.w.s.143(3) of the Income Tax Act, 1961. Charge interest u/s. 234A, 234B, 234C 234D if applicable. Give credit for prepaid taxes, if any, after due verification. Issue demand notice and challan / RO accordingly. Issue show cause notice u/s. 274 r.w.s. 271(1) (c) of the I.T.Act. ITNS 150 enclosed. 6. Dissatisfied with this addition, the assessee carried the matter in appeal before the ld.CIT(A). The assessee has raised multiple fold of contentions, which have been analytically examined by the ld.CIT(A). The ld.First Appellate Authority has ultimately arrived at a conclusion that this amount of ₹ 26.05 crores which was admitted by the partner received as on-money cannot be taxed in the Asstt.Year 2011-12 alone. The detailed discussion made by the ld.CIT(A) is worth to note. It reads as under: 4.1 Now the question arises that in which year the disclosure of income amounting to ₹ 26.05 crore, which has been termed by AO as 'on money', should be taxed. Whether it should be taxed in A.Y. 2011-12 alone on the basis of statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It can be seen that the appellant has booked the flats in various projects and received advances by way of cheque. Similarly, it has also received advance in cash which is now declared and termed by AO as 'on money' in the statements given by the partner of the firm. To substantiate this fact, appellant has furnished the details of projects as well as the basis on which cash advances have been received by it from its customers. In this way, revenue can be recognized in the case of appellant only when flats are sold and, thus, both cheque portion/cash portion being the on money' would accrue as income only in the year of sale of flats. Therefore, in any way, disclosure of ₹ 26.05 crore cannot be taxed solely in the year under consideration. 4.2 The claim of appellant that income in its case gets accrued/arisen only when the sale deeds in different projects are executed, also gets support from various judgments of different courts. Hon'bie Supreme Court, defining the accrual of income, in the case of CIT Vs. M/s. Excel Industries Ltd. (2013) 86 CCH 086 ISCC has opined as under:- In our opinion, more importantly, income accrues when there arises a corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of working out profit. Receipt of sum amount would assume the character of income or profit only when the sale transaction is completed in accordance with law. The land does not cease to be the stock-in-trade of the assessee unless and until the sale is completed. Therefore, the amount received by the assessee by way of earnest money and parry-payment of the purchase price cannot be treated as its trading receipt - Kunjantal Sons. In re (1941*) 9 ITR 358 (All), Chidambarain Chettiar vs. CIT (1936) 4 ITR 309 (Mad); TC39R, 210 and CIT Vs. Shah Doshi Co. (1981) 23 CTR (Guj) 307: (1982) 133 ITR 23 (Guj): TC 39R, 936 followed. Amount received by way of earnest money and advance amount towards transaction of sale of land would not by itself partake the character of taxable income. The ratio given by Hon'ble High Court gets support from various decisions of other High Courts also. On the issue that whether the sale of immovable property to purchaser would be complete on actual conveyance of the title or otherwise, it has been held by Hon'ble Calcutta High Court in the case K. C. Pal Chaudhary Vs. CIT 46 ITR 01 that capital gain would accrue on payment of full con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt through cheques 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 cheqeus and receipt through cash as 'on money' will arise as income to the appellant 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, in the case of appellant, on money' received by it do not have the character of income but only an advance like one received through cheque. Both will become part of the sale consideration to the appellant simultaneously on either handing over the possession of the flats or on execution of transfer deeds whichever happens earlier. In view of this discussion, it is held that the disclosure amount of ₹ 24,90,44,067/- crores as xon money' will partake the character of taxable income when registered sale deeds of the flats are executed in subsequent years, not in the year under consideration. 4.3 The other issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same or in the books or without observing that from the method adopted by appellant, true income cannot be deduced. She has failed to observe that for one disclosed income, there cannot be two separate methods of accounting. She has also failed to comment upon the issue of reduction of income in subsequent years in case whole of the amount disclosed to be assessed in one year i.e. the year under consideration. The provisions of section 292C of the Act and principle of preponderance of probability discussed by AO have no relevance as the appellant has not retracted from the statements and admitted to disclose the income and paid taxes as per statements given by him. In view of this, AO has failed to substantiate the addition made by her in the year under consideration. 4.5 In view of above discussion, it is held that the addition of ₹ 24,90,44,067/- made by AO is not justified as this amount is not taxable solely in the year under consideration, rather, in the relevant subsequent years as an when the registered sale deeds of flats are executed in various projects as per the chart. Therefore, the addition of ₹ 24,90,44,067/-made by AO is deleted and grounds taken by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered income to the extent of sales have been materialized. He took us through the statement of Shri Mukesh Patel recorded during the course of survey and apprised us about the status of the projects against which income is being assessed at the end of the AO in this assessment year. He made reference to the question and reply no.5 as well as 8. Statement of Shri Mukesh was recorded in Gujarati, but a translated copy has been placed on paper book at page no.73. English translation of the relevant question/reply reads as under: Q.5 Please tell us the stage of construction work completed of above mentioned projects carried on by M/s. Happy Home Corporation and also furnish complete detail of booking status in all projects. A.5 The detail of computation of construction and booing position of above mentioned projects of M/s. Happy Home Corporation is as under. Project Name Construction State % of Booking 1 Nandini II Outer Plaster flooring 46% 2 Nandini III Plinth Work 47% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the registration of the sale deed. The aforesaid unaccounted income is over and above the regular income reflected in the regular books and income tax returns. 10. On the strength of the above, he pointed out that certain projects were just started. In other words, leveling of ground was done. At certain projects, construction was made on plinth level only. In such situation, how it can be stated that whole receipts should be recognized as Revenue. This on-money part-takes character of advances. If the assessee has not constructed flats, then it has to return the on-money also. Thus, on-money is depended upon completion of projects. The assessee has been recognizing its revenue on project completion basis. He further drew our attention towards photos which were filed before the AO in order to demonstrate actual state of affairs at a particular project. He put reliance upon the following decisions and filed copies of them: i) Cit Vs. Ashaland Corporation, 133 ITR 0055 ii) CIT Vs. Motilal C. Patel Co., 173 ITR 0666; iii) Alapati Venkataramiah Vs.CIT, 57 ITR 0185; iv) ITO Vs. Siddharth S. Patel, ITA No.1852 and 1853/Ahd/2003, dated 23/4/2010 v) DR Construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anded over to the prospective buyers. On completion of this transaction then only right to receive would crystalise. Though, the ld.counsel for the assessee has made reference to large number of decisions, but most of them are related to those assessees who are trading in the land and Hon ble Courts have observed that transaction would be construed as complete when sale deed was registered. But there is one decision of Hon ble Gujarat High Court wherein the assessee was a developer and income has been recognized when possession was delivered or sale deed was executed. We would like to refer to the decision of the Hon ble Gujarat High Court in the case of CIT Vs. Shivalik Buildwell. The assessee was a developer of real estate. It had received booking amount of ₹ 27.85 lakhs. The AO made addition of this amount. On appeal, the ld.CIT(A) has deleted it. The Tribunal concurred with the ld.CIT(A) but for different reasons. The Revenue went in appeal before the Hon ble High Court and the Hon ble Court has upheld the deletion by observing as under: 2. Insofar as the question A is concerned, we notice that the Assessing Officer had made addition of ₹ 27.85 lakh (rounded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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