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2017 (6) TMI 133 - ITAT AHMEDABAD

2017 (6) TMI 133 - ITAT AHMEDABAD - TMI - On-money received by the assessee over and above amounts stated in the regular books of accounts - Held that:- On account of any reason project could not be completed, then the assessee would be required to refund the money, and in that situation, on-money would also be refunded. Thus, the right to receive or retain this component was subject to the execution of the sale deed or handing over of the possession. This aspect has been clarified by the partne .....

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ng standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by 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 .....

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EMBER: 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 argumentative in nature. In brief, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of ₹ 24,90,44,067/-. 3. Brief facts of the case are that the assessee is a p .....

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ucted at the business premises of the assessee on 18.10.2010. During the course of survey, two papers were found from the pocket of one of the partners which were inventorised as annexure B/1 and these papers were impounded. Statement of Shri Mukesh Patel, one of the partners of the assessee-firm was recorded wherein he admitted that the assessee firm has earned unaccounted income of ₹ 26.10 crores over and above its regular income. The assessee has given bifurcation of this ₹ 26.05 .....

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plied show cause notice. Reply of the assessee has been reproduced by the AO in the assessment order from page nos.4 to 12. The assessee has pointed out that it has not retracted from declaration made during the course of survey. Two pages of Annexure B/1 impounded during the course of survey did not exhibit nature of the amount mentioned against each project. They only disclosed the name of the project, address of the project and amount against which projects. The papers do not disclose as to w .....

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ll 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 discus .....

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aining the point of revenue recognition: (i) Transfer of significant risks and rewards of ownership, price being on e of the most significant risk factors (ii) No significant uncertainty exists regarding the amount of the consideration expected to be derived and (iii) It is not unreasonable to expect ultimate collection. 11.2 Here, it appears necessary to understand the specific trade practice prevalent in the real estate world of Surat City. What actually happens it that the seller and the buye .....

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transaction including the unaccounted portion, the assesses maintain them secretly at some less known secret premises. Thus, on every installment received from the customer, the said diary gets updated. The unaccounted portion is much higher than the accounted portion therefore, paid up much before the accounted portion of consideration and hence significant risks and rewards get transferred to the buyer much earlier than what is apparently is shown on date of actual transfer. Taking the date o .....

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clear that the disclosure of ₹ 26.05 crores as unaccounted income over and above the regular income is the unaccounted income in the nature of on money pertaining to the current year only i.e. F.Y. 2010-11 relevant year 2011-12. 13. The assessee has also 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 itsel .....

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come 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 Ltd. V. CIT(1997) 227 ITR 172, 1 .....

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. 145(3) of the Income Tax Act. 15.1 The guiding principles regarding maintenance of proper and acceptable books of accounts are envisaged by section 145 of the Income Tax Act, 1961. Section 145 of the Income Tax Act, 1961 casts triple onus on the assessee to maintain books of account in such manner as to meet the following the three criteria. (1) Satisfaction about the correctness of the accounts (2) Satisfaction about the completeness of the accounts (3) Regularity in following the method of a .....

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jection on account of incorrectness or incompleteness or irregularity. 15.3 From the perusal of Profit & Loss Account of the assessee, it is seen that it has offered ₹ 1,14,55,933/- as income disclosed during survey for the F.Y. 2010-11 as against the disclosure of unaccounted income of ₹ 26.05 crores over and above the regular income for F.Y. 2010-11 as discussed above. Further, the assessee has also failed to provide the list of customers to whom the income disclosed during the .....

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cable 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 assesse .....

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ises of the assessee. ! • Impounded documents show unaccounted income ('on money') admitted in the statement recorded on oath. ; • Admitted unaccounted income in statement on oath. However, same is not reflected in the Books of Account of the assessee. j • Significantly, surrender of income is neither retracted nor withdrawn. • Unaccounted income pertains to "current year" i.e. F.Y. 2010-11 which fact is evident from the date on the impounded material. &bull .....

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nd above the uncounted income Against the said discrepancy of ₹ 4,78,036/-. In response to specific query regarding the treatment of ₹ 5,00,000/-, the assessee stated that separate entry for the said difference in the amount of cash was not passed and that ₹ 5,00,000/- is voluntarily offered as additional income of the current year in order to peace of mind and avoid protracted litigation. In this regard it is submitted that it is only after this discrepancy was brought to ligh .....

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total income as returned by the assessee is accepted and thereupon, computed as under: In Rs. Total income as per return of income 2,76,81,160/- Add: Income disclosed during survey 24,9Q,44,067/- : Cash discrepancy 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 according .....

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r 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 statements of the partner, Shri Mukesh Patel or in different years considering the relevant facts and circumstances of the case. In my opinion, the statement of .....

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n disclosed but the projects are still to be completed or various investment/expenditure are to be incurred. Thus, both the components i.e. receipts and expenditure should exist to treat any amount as income. Therefore, in the case of appellant, only the receipt part i.e. disclosure of ₹ 26.05 crores, cannot be treated as income in isolation unless the expenditure/investment part also correspondingly exists. The method of accounting disclosed by appellant also supports this principle. It i .....

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to the purchasers would be in the nature of advance and cannot be said to have accrued to the appellant. Appellant has incurred expenditure/investment in different projects in different years but income to it would accrue only when the flats are sold to the buyers. Any advance money received by appellant can never be its income. It would only be a liability shown in the balance sheet as advances from the customers and would be adjusted against the sale proceeds of the flats when flats are transf .....

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e 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 .....

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e becomes due to pay that amount. The income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purpose of taxability that the income is not hypothetical and it has really accrued to the assessee." In the line of aforesaid view taken by Hon'ble Supreme Court, the jurisdictional High Court has already decided the issue on similar facts in the case of CIT vs. Ashaland Corporat .....

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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, head notes from the judgment are referred as under:- The land purchased by the assessee which forms part of its stockin- trade, 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 completion of the sale transaction that the a .....

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on of purchase and sale culminating in the extinguishment of the title of the vendor and simultaneous creation of the title in the vendee that the assessee earns profit or suffers loss. A transaction which may or may not ultimately result in a completed sale by executing a registered conveyance is no transaction at all for the purpose 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 .....

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y 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 gai .....

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lso has held in the case of CIT Vs. Mormasji Mancharji Vaid 250 ITR 542 that the 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 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. The appellant also is dealing in seve .....

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right of the appellant to receive consideration for such transfer would arise. Prior to this, whatever the appellant has received from the prospective buyer would only be a liability and the liability as such cannot be treated as income. As mentioned by appellant also in its submissions, merely receiving a sum for future purchase of an immovable property cannot be a sale consideration as property being not in existence. The possession thereof cannot be given to the prospective buyers, therefore, .....

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eration. 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. Ther .....

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ncome when registered sale deeds of the flats are executed in subsequent years, not in the year under consideration. 4.3 The other issues raised by appellant in its submissions also support its claim that the entire disclosed income of ₹ 26.05 crore is not taxable solely in the year under consideration. The appellant has not retracted the statements making disclosure and accepted it in toto. It has paid taxes also on the income disclosed in relevant years subsequent to current year as an w .....

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see did make imports and did derive benefits under the advance license and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not on .....

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the assessment proceedings by the appellant but no comments have been given by her in this regard. Thus, in the case of appellant, same amount of disclosure cannot be taxed twice. ; 4.4 In the light of aforesaid discussion, the conclusion drawn by AO for rejecting the books of account of appellant and making addition of ₹ 24,90,44,067/- in the year under consideration is not sustainable. The AO has rejected the method of accounting consistently followed by appellant without pointing out an .....

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ce 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 rele .....

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year. This income was not recorded in the regular books of accounts. This amount had already been received at the time of booking even without registering a single registration. These amounts would not be adjusted against any future expenditure. It was an out-of-book profit. Therefore, it should have been offered in this assessment year only. He further contended that the ld.CIT(A) has recorded a finding that onmoney cannot be taxed alone unless it is proved that all the relevant expenditure of .....

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ference to Accounting Standard AS-9 made by the assessee is concerned, that is related to things duly accounted in the books. It is something over and above those items. 9. On the other hand, the ld.counsel for the assessee has filed written submissions running into 21 pages. In his first fold of contentions, he submitted that the issue in dispute is covered in favour of the assessee by various decisions. He pointed out that basically taxability of the amounts is not in dispute. As far as rate o .....

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will recognize the revenue on transfer of flats to the prospective buyers. In this year, it has offered 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, bu .....

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% of Booking 1 Nandini II Outer Plaster & flooring 46% 2 Nandini III Plinth Work 47% 3 Nandanvan II Second Slab 34% 4 Nandanvan III First Slab 27% 5 Vastu Luxuria First Slab 25% 6 Luxaria Business Hub Ground Level 4% 7 Nakshatra Heights Ninth Slab 68% 8 Nakshatra Platinum Compound Wall 9% 9 Nakshatra View Ground Level just started 10 Nest View Compound Wall 4% 11 Capital Greens Compound Wall just started 12 Sweet Home Completed 32% 13 Sweet House Completed 8% 14 Happy Residency Masonary, Pla .....

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rent projects. The total of page 1 amounts to ₹ 10,55,00,000/- and page 2 amounts to ₹ 15,50,00,000/-. Thus, the aggregate total of both pages amounts to ₹ 26,05,00,000/-. Kindly explain both the papers. A.8 The aforesaid amount of ₹ 26,05,00,000/- is unaccounted income of M/s. Happy Home Corporation from its all projects, which I declare voluntarily and which is not recorded in the regular books of accounts. On this amount of ₹ 26,05,00,000/-, we will pay the due i .....

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uction 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 .....

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ontentions and gone through the record carefully. There is no dispute with regard to the fact that an amount disclosed at ₹ 26.05 cores by the assessee has been offered for taxation in different assessment years, as and when project was complete and sales have been materialized. It has also not been disputed that Revenue is not taxing the assessee on receipt of booking amount i.e. the amount which has already been recorded in the books. A simple example can be taken from the reply to quest .....

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en adopted for the on-money received by the assessee over and above amounts stated in the regular books of accounts. Analysis of the AO was that against this amount, the assessee would not be required to incur expenditure. It is a net realization which has only a profit component. The assessee is not disputing this fact, but it was of the view that right to retain this amount would accrue to it when sale deed would be executed or possession of the flats would be given to the prospective buyers o .....

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is also pertinent to observe that the title in the property would be transferred not in the year in which the assessee received part consideration as earnest money, but it is to be construed in the year, when the sales was registered or possession was handed 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 as .....

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eived 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 off). The assessee carried the issue in a .....

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