TMI Blog2020 (5) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... n progress that was shown by the assessee in its balance sheet. With this observation, we remit the issue in dispute to the file of the Assessing Officer for limited purpose of re-quantification of the addition in respect of unaccounted cash receipts unearthed by the Department during the course of search/survey action. The Assessing Officer is directed to compare the above cost of construction with the work in progress shown by the assessee in its balance sheet. Total work in progress shown by the assessee in its books of accounts in each assessment year is to be apportioned between accounted collections and unaccounted collections in their respective ratio so as to arrive at correct undisclosed income of assessee for each assessment year. The resultant figure would be the undisclosed income of the assessee for each assessment year and there is no question of taking any percentage of it as income of assessee as argued by ld. AR. assessee is only entitled for proportionate deduction towards cost of construction and accordingly AO has to recompute the unaccounted income for all three Assessment Years after giving an opportunity of hearing to the assessee. It is needless to say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises but at the same time authorization for survey is given on 26/02/12016 which was carried out on 29/02/2016. Since the survey was authorized on the date of search on 26/02/2016 and the survey was conducted on 29/02/2016 after omitting the search the assessment proceedings should be under survey and not under search. In view of the survey u/s. 133A and in the absence of conducting search inspite of mentioning the of the appellant company in the search warrant u/s. 132, the assessment u/s. 153A is illegal and void. The copy of the search warrant in Form No. 45 produced by the representative of the revenue is incomplete and in the absence of search warrant in Form No. 45 with complete details, the documents provided by revenue is incomplete. 4.1 The assessee has filed petition accompanied by an affidavit for admission of the additional grounds. The Ld. AR submitted that additional ground which goes to the root of the matter in dispute may be admitted by the Tribunal. It was submitted that the assessee came to know about the possession of the search warrant only on the date of hearing of this appeal i.e. 09/03/2020. As such, after going through the search warrant, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plain reading of r. 11 of the ITAT Rules, 1963. Indeed, on such a plea being taken, the Tribunal is under a statutory obligation not only to entertain the plea but also to decide the same after providing sufficient opportunity of being heard to the other side. Similar views have been taken by Hon'ble Delhi High Court (i) in the case of CIT vs. Mahalaxmi Sugar Mills Co. Ltd. (1993) (200 ITR 275) (Del), (ii) Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. vs. CIT (1992) 106 CTR (Bom) 78 ; (1993) (199 ITR 351, 367) (Bom) and (iii) Hon'ble Rajasthan High Court in the case of Mewar Sugar Mills Ltd. vs. CIT (1993) (203 ITR 415) (Raj). The Hon'ble Bombay High Court in the case of Baby Samuel vs. Asstt, CIT (2003) 184 CTR (Bom) 140 : (2003) (262 ITR 385) (Bom) has held that when an issue was not specifically taken in the memorandum and grounds of appeal but mentioned in the written submissions filed before the Tribunal and specifically argued at the time of the final hearing of the appeal, the Tribunal cannot refuse to adjudicate upon that issue on the merits of the ground that no such ground has been taken specifically in the grounds of appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, there is merit in the argument of the Ld. AR that the assessee was not in possession of search warrant on earlier occasion. Being so, after getting the copy of the search warrant, the assessee has filed the additional ground. Hence, we find reasonable cause in filing the additional ground on 10/03/2020 and the same is admitted. Accordingly, we admit the additional ground for adjudication. 5. First common grounds of appeals and all the additional grounds are relating to questioning the validity of assessments on the reason that there is no valid search in the case of assessee and only materials gathered in the course of survey action was used to frame assessments. Hence, these grounds are adjudicated collectively. 5.1 The facts of the case are that search and seizure action was conducted in the case of the assessee company, its group concerns and its Directors on 29/02/2016 and 21/04/2016 on the basis of search warrant dated 26/02/2016 and 19/04/2016 issued by DIT (Inv.), Kochi and JDIT (Inv.), Kochi respectively. Search u/s. 132 of the I.T. Act was carried on at the business premises of the assessee company and at residences of its Directors. Notices u/s. 153A were issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments u/s. 143(3) r.w.s. 153A of the I.T. Act for A.Ys 2014-15 to 2016-17 vide order dated 30/12/2017 as per details given below: Assessment Year Total Income Tax demanded 2014-15 28,56,35,976 15,53,40,290 2015-16 15,17,67,094 7,30,79,550 2016-17 1,11,37,131 48,97,400 Total 44,85,40,201 23,33,17,240 5.1.1 On appeal, the CIT(A) observed that during search proceedings on a group of assesses and premises, both proceedings u/s. 133A and 132 of the I.T. Act are a common phenomenon. Where commercial enterprises/premises, not involving seizure of valuables are concerned, action u/s. 133A is contemplated whereas residences and premises where valuables are likely to be seized are covered u/s. 132 of the Act. Thus, the CIT(A) observed that some premises in the case of an assessee may be covered u/s. 133A and others u/s. 132 of the Act. In this case, there was a survey u/s. 133A in respect of Tharif Builders P. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of income received from the assessee s premises by the survey u/s.133A of the Act, but two sheets of papers were received from the residence of Sri Mohammedkutty Haji regarding the receipt of consideration by cheque and cash in respect of 20 agreements for the sale of shop rooms. The Ld. AR submitted that the assessments were completed without any reference to the seized document and the assessments were completed on the presumption that entire building was sold for a consideration of ₹ 62,47,79,873/- and a Net Profit of ₹ 45,77,22,783/- was treated as income of the assessee company. 5.3 The Ld. AR submitted that as per the search warrant, no search was carried out in the assessee company s premises as claimed by the Assessing Officer, no search warrant was issued on 19-04-2016 and no search was conducted either on 29-02- 2016 or on 21-04-2016 as claimed by the Assessing Officer. Further, it was submitted that no panchanama in the name of the assessee company was produced by the revenue before the Bench, even after specific request by the assessee s representative in this respect. It was submitted that even though the search was authorized in the name of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the course of survey u/s. 133A of the I.T. Act could also be used while making assessment u/s. 153A of the I.T. Act. The Ld. DR relied on the following cases laws: 1. CIT vs. S. AjitKumar(102 CCH 0002) wherein the Supreme Court held that any material or evidence found/collected in Survey which had been simultaneously made at premises of connected person could be utilized while making block assessment in respect of assessee u/s. 158BB. 2. CIT vs. Devesh Singh (24 taxmann.com 26) (All.) (FB) wherein the Allahabad High Court held that assessment in individual capacity of each person named in warrant of authorization which was issued in joint names, is perfectly within jurisdiction of assessing authority. 5.5 Regarding joint warrant, the Ld. DR submitted that there is specific provision u/s. 192 as per which warrant which is issued jointly is valid and the Assessing Officer is well within his jurisdiction of making assessment u/s. 153A of the Act. He relied on the judgment of the Kerala High Court in the case of CIT vs. Khyber Foods (23 taxmann.com 27) wherein it was held that where a common search warrant was issued for searching several assesses, in pursuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. CHN/IT-CLT/023/CS-01 page 98, seized from the residential premises of Shri Mohammedkutty Haji, Tirur Computer printout having breakup of amount received in cash and cheque for the sale of shop rooms 3. CHN/IT-CLT/023/CS-01 page 158, seized from the residential premises of Shri Mohammedkutty Haji, Tirur Manuscript table data showing breakup of cash and cheque portion adopted in the sale of shop rooms in Tharif Mall 5.7 In our opinion, there is no error in framing assessments u/s. 153A of the I.T. Act on the basis of the seized records. The assessments were framed by the Assessing Officer on the basis of the incriminated documents found during the search and statement recorded during the course of search. Being so, the Assessing Officer is completely justified in framing the assessments u/s. 153A of the I.T. Act. For this proposition, reliance is placed on the judgment of the Jurisdictional High Court in the case of Travancore Diagnostics P. Ltd. vs. ACIT (390 ITR 167) wherein it was held that when suppression had been found from the documents and the statement on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had entered into development agreement dated 18/12/2012 for constructing a shopping mall on the land belonging to M/s. Ponmundam Properties Pvt. Ltd., a group concern of the assessee company. Both these companies had common Directors, viz. Shri P.K. Mohammedkutty Haji, Shri Hamza, son of Shri P.K. Mohammedkutty Haji. As per the development agreement, 67 shop rooms having total saleable area of 8214.08 sq. ft./78,624.28 sq ft were to be constructed and the land owner was entitled to get possession of 27% of total saleable area on first and second floor of the Mall as consideration for its land and the sale of shops in the Mall was entrusted by the assessee builder vide agreement dated 10/03/2014 to a exclusive broker M/s. Neu Town Property Management Developers for marketing and identifying potential customers, negotiating and finalizing terms and conditions for sale of shops in the Mall. After analysis of the seized documents, statements of directors and broker, the Assessing Officer found that sale values of the shops in the Mall were suppressed in the accounts of the assessee and in all the cases roughly 50% of the sale value was accounted for in the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4133679 2050000 2083679 Nahla Yusuf 316-A 426.18 3111114 150000 1561114 RifadAliminhaj 316-B 426.18 3111114 150000 1561114 Riyaz Kochu Mon 401-A 493.43 3092326 1500000 1592326 Sreekumar 403 589.26 3712000 1856000 1856000 6.1.1 Floorwise average rate per sq. feet is as follows: Name Room No. Floor in the Mall Area Received in cash Agreement Value Total Sale Consideration Average Rate Per sq. mtr. Rounded to Percentage of sale proceeds received in cash Abdul Azeez Porakkotupalathu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1576.14 6405981 6957873 13363854 8478.88 7600 47.94 Antony Phillip Marykutty K.J. 304 third 587.48 1972000 2239405 4211405 7168.59 Ali Yusuf Kunchu 1A third 493.25 1800000 1981601 3781601 7666.23 Ali Yusuf Kunchu 1B third 494.82 1800000 1993405 3793405 7666.23 Mohamed Naufal 2 third 550.79 2050000 2292047 4342047 7883.31 Nahla Yusuf 16A third 426.18 1550000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.00 7,96,05,825 46.94 3,73,66,974 Total 78624.28 62,47,79,873 30,75,54,977 6.1.2 Thus, it was found that the assessee had made sales amounting to ₹ 62,47,79,873/- out of which ₹ 30,75,54,977/- was collected in cash which was not accounted in the books of account. The bifurcation of the above amounts is as follows: Assessment Years Sale Value (Rs.) 2014-15 39,24,98,837/- 2015-16 21,12,16,375/- 2016-17 2,10,64,661/- Total 62,47,79,873/- 6.1.3 The Assessing Officer estimated the gross profit and the Total Income as follows: Narration Rupees in Crores A Total sale value 62,47,79,873/- B Sale proceeds received in cash (not reflected in the books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sold are in sq. ft. in each floor Rate per sq. ft. in the floor Total sale price collected Ground floor 15508.34 9,100 14,11,25,894 First floor 18066.40 9,000 16,25,97,600 Second floor 17105.75 7,600 13,00,03,700 Third floor 15696.74 7,100 11,14,46,854 Fourth floor 12247.05 6,500 7,96,05,825 Total 78624.28 62,47,29,873 7.1 Thus, according to the CIT(A), the total sale value was estimatedat ₹ 62,47,79,873/- and from this sale, the proceeds received in cash was estimated at ₹ 30,75,54,977/- which was reduced to arrive at the cheque amount.The CIT(A) observed that the cost of construction of Mall at ₹ 16,11,88,680/- was reduced which is the actual amount spent as per the books of accounts of the assessee upto 31/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the A.Y. 2014-15, 2015-16 and 2016-17. The floor area sold up to 31/03/2016 was 25971.79. According to the CIT(A) the area of 22188 sq. ft. was not handed over to the land owner in the completed condition, as per the development agreement with the land owner up to 31.03.2016. The balance floor area of 30464.49 owned by the assessee remained unsold as on 31/03/2016. This is evidenced by the occupancy certificate in respect of first and the second floor of the building which was received only on 09/11/2016 (A.Y. 2017-18). The CIT(A) observed that major works were still pending as on 15/01/2019 and the assessee had been following an accounting system wherein the expenditure and the revenue after routing through the P L account was capitalized as work in progress and only a certain portion of the revenue was offered as income after the same was recognized by assessee as relating to completion of the concerned shop. Since substantial amount of work was still to be undertaken in the mall before the shops can be recognized by the assessee for profit purposes, the CIT(A) was of the view that the construction was incomplete and it is not possible to arrive at the profits for the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Protection System 17 Painting Work 18 False Ceiling work 19 VDF flooring in parking area including painting 20 Structural Glazing work glass work 21 Interlock 22 Outside cladding work 23 Poster Box 24 Seating Plaza 25 FTTH 26 Electrical building STP Tank 27 Compound wall 28 Biogas 29 MS Structural Steel work DG 30 Drainage 31 Escalator cladding 32 Cabling work of CCTV PA System 33 Plumbing Work 34 STP Work 35 Toilet PD Door work 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be accounted for in the hands of the assessee company during the relevant assessment years. Hence, the CIT(A) accepted this ground of appeal of the assessee. 8. The CIT(A) observed that during the relevant assessment years, a substantial portion of the proposed mall was unsold and the assessee was in receipt of undisclosed income from its various purchasers. According to the CIT(A), the seized records revealed that the shops on each of the floor there are documented proof for the amount of on-money received and the ratio of the on-money received in cash bears a specific ratio to the cheque amount received for each of the floor, as computed by the Assessing Officer. The CIT(A) observed that the average onmoney component for each of the shops allotted, in each of the floors, was computed by the Assessing Officer by extrapolating the findings of the seized documents for all the shops sold. In view of these facts, the CIT(A) opined that the total income of the assessee company will have to be computed during each of the relevant assessment years in order to take into account the on-money receipts of the assessee. According to the CIT(A), the Assessing Officer had worked out the floo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8271906.65 57232949.3 10310768.2+ 5090977 = 15401745.2 87206601.2 8.1 From the above, the CIT(A) observed that the assessee had collected an amount of ₹ 8,72,06,601.2/-on-money which was undisclosed in the books of accounts of the assessee during the relevant assessment years. Since the aforesaid amount was not disclosed in the books of accounts of the assessee, the same being revenue receipts collected for the purpose of business just like the amount collected in cheque from the various purchasers, the CIT(A) held that it cannot be capitalized and have to be offered to taxes separately during the relevant assessment years. According to the CIT(A), the assessee had already booked and capitalized all the concerned expenses as work in progress against the disclosed receipts and the onmoney collected had no load of any expenses and being not recorded in the books of accounts was freely available to the assessee as income of the relevant assessment years. The CIT(A) stated that the assessee had returned the income for A.Y. 2014- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income Tax (Appeals)-III, Kochi and entire assessment was cancelled, as per order dated 10-04-2019 in ITA No. 46,47,48/C/CIT (A)-III/ 2018- 19 for the reason that there was no transfer of property and the income fixed at ₹ 16,55,60,466/- and the tax demand ₹ 9,47,77,960/- were totally cancelled. The Revenue has not filed any appeal to the Income Tax Appellate Tribunal, Cochin Bench, Kochi and the matter has become final. 8.4 The Ld. AR submitted that the Assessing Officer and the CIT(A) had not relied upon any seized material or impounded material for the purpose of assessment, but completed the assessment assuming that entire built-up area is sold at value as fixed by the assessee. In fact, the building is yet to be completed and only agreements are entered into with 50 customers for an area of 25971.79 sq ft. and no property was sold by registered document to the customers. It was submitted that the land-right was also not transferred to the customers by the land-owner, Ponmundam Properties Pvt Ltd. The Ld. AR submitted that the CIT(A) rejected the assessment orders and relied upon the seized documents regarding 20 agreements for the receipt of consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation by cheque and cash are found in respect of 20agreements only, from the documents seized at the time of search, from the residence of Shri P.K.Mohammedkutty Haji, the Chairman of the company. In respect of these 20 agreements for a total of 9471.43sq.ft. as detailed below ₹ 3,52,21,109/- was received by cheque and ₹ 3,60,42,509/- was received by cash and the total amount received is ₹ 7,12,63,618/- in respect of the floor area as under: Details in respect of 20 agreements A. Y Sq ft sold By cheque as per books By cash as per seized documents AY 2014-15 587 20,54,500 19,72,000 AY 2015-16 4456.32 1,84,28,528 1,75,50,673 AY 2016-17 4428.11 1,47,38,081 1,65,19,836 Total 9471.43 3,52,21,109 3,60,42,509 8.8 In respect of the remaining 30 agreements the total floor area of 16500.36 .sq ft. the Ld. AR submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and right and value for the building and the value of the land right received was credited to land value of Tharif Mall Payable. Out of the value received for the building, the Ld. AR submitted that 8% was treated as income in the respective years and the balance building value was shown as liability. The Ld. AR submitted that the 8% profit was credited to Profit and loss account under the head income recognized from Tharif Mall and the same amount was debited to building work in progress. The Ld. AR drew our attention to the following amount of current liabilities exhibited in the Balance Sheet of the company: A.Y. Land value Construction Value As on 31-03-2014 24,39,190 65,94,852 As on 31-03-2015 2,12,51,511 5,74,57,854 As on 31-03-2016 2,52,33,239 6,82,14,207 8.9.2 The Ld. AR referred to the details of income recognized by crediting Profit and Loss account and debiting work in progress are as under: Assessment Year Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Rs 5,12,01,017 Total (B) 10,94,27,354 Total collection from 50 agreements as above by Cheque 9,34,47,446 Total collection from 50 agreements as above by Cash 8,72,43,526 Total C (A+B) 18,06,90,972 Assessment Year wise details are as under: - Assessment years Cheque Amount Cash Amount Total 2014-15 90,34,042 32,87,986 1,23,22,028 2015-16 6,96,75,323 6,74,35,704 13,71,11,027 2016-17 1,47,38,081 1,65,19,836 3,12,57,917 Total 9,34,47,446 8,72,43,526 18,06,90,972 Expenditure Total construction cost and expenditure including depreciation is as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR submitted that the adoption of ₹ 8,72,43,526/- as the income is incorrect and the above amounts may be accepted. 8.9.7 The Ld. AR further submitted that the assessee received the amount by way of cash towards sale of shops and there is proportionate cost of construction incurred by the assessee which is to be given deduction. Further, he submitted that the assessee has treated the cost of construction relating to the total project as work in progress only taking the portion of these receipts as income in these assessment years. It was submitted that the assessee had offered income in these assessment years at lesser of the total cost incurred by the assessee as profit in these assessment years and the balance was shown as work in progress in the balance sheet. Accordingly, on the same principles, the income is to be ascertained on the unaccounted cash receipts on sale of shops. 9. The Ld. AR submitted that there are no valid seized materials to sustain the additions. The Ld. AR submitted that the building construction with a total area of 78,624.28 sq ft was only partly completed as on 31-03-2016 relating to AY 2016-17. The Ld. AR submitted that in these assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. 13. We have heard the rival submissions and perused the record. In the present case, the assessee has collected unaccounted sale receipts in the form of cash for the assessment years 2014-15 to 2016-17. The CIT(A) extrapolated the income on the basis of the seized documents in respect of 50 agreements and estimated the undisclosed income for these assessment years. The contention of the Ld. AR is that these entire unaccounted sale receipts cannot be considered as income of the assessee in these assessment years and matching principles is to be followed and deductions towards corresponding cost of construction is to be considered which was shown as work in progress in the balance sheet. He submitted that the cost of construction relating to the unaccounted collections which was shown in the books of accounts of the assessee and reflected in the balance sheet as work in progress. He drew our attention to the corresponding entry in the Balance Sheet shown as work in progress in all the assessment years. We have gone through the Balance Sheet relating to all assessment years and found that there is entry relating to work in progress in its balance sheet. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,816 4,25,068 3,90,630 16,11,514 3)Depreciation - 13,01,688 19,05,472 12,92,372 44,99,532 Total (D) 1,43,06,630 6,13,69,544 5,26,59,411 3,30,22,501 16,13,58,086 13.2 In our opinion, it is proper to consider the above cost of construction after due verification of it by assessing officer with WIP disclosed by assessee. Accordingly, we direct the Assessing Officer to give due credit towards cost of construction relating to the unaccounted sale receipts collected by the assessee which was included in the work in progress that was shown by the assessee in its balance sheet. With this observation, we remit the issue in dispute to the file of the Assessing Officer for limited purpose of re-quantification of the addition in respect of unaccounted cash receipts unearthed by the Department during the course of search/survey action. The Assessing Officer is directed to compare the above cost of construction with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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