TMI Blog2017 (4) TMI 1513X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders of the Revenue Authorities and the paper books filed along with the written submissions, we are of the view that AO should be directed to examine the date of approval of the project in question and apply the said decisions on the said clause in Ex. Emgeen Holdings (P) Ltd [ 2011 (7) TMI 199 - ITAT MUMBAI] . AO shall grant reasonable opportunity of being heard to the assessee as per the set principles of natural justice. Accordingly, relevant grounds are partly allowed for statistical purposes. Unaccounted receipts‟ - on money earnings for entire project based on the said diaries/documents in the year AY 2010-11 - Addition calculated from the impounded material in the form of Annexures A1 to A9 - basis of the said addition income is the entries in the diary (Annexure A1 to A4) maintained by the assessee - HELD THAT:- We approve the finding of the CIT(A) relating to deletion of receipts of ₹ 6.26 crores and also the amended project completion method followed by the assessee. Assessee did not wait to offer the income of Radha Govind building in the year of completion. Rather, Assessee offered the same in the current year. He however, did not offer any incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax relating to Radha Govind building in next AY, in compliance of the sworn statements, AO must grant corresponding relief in next year to avoid double taxation of same income twice. Thus, the principle is (i) whole of the income of the Radha Govind ( ie both accounted and unaccounted) needs to be tax in this year of income recognition and (ii) whole of the legal expenditure of the said building ( ie both accounted and unaccounted) based on the diaries needs to be allowed in favour of the assessee. AO cannot selectively ignore certain expenditure appearing on the impounded documents for any whimsical reasons. Now, we shall undertake to examine the deductibility of the unaccounted profits of the said building when the same were not audited by the Auditor and not filed in Form no 10CCB in the next paragraph. Whether the deduction available in respect of on money when the Audit Report does not cover the same? - Here is procedural issues relating to Audit Report. As argued by the Ld DR, the said net on money if any of the building Radha Govind is outside the Audit Report in Form 10CCB and thereby such on money income becomes ineligible for deduction u/s 80IB(10) of the Act fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 in respect of the entire project involving the construction of three buildings namely Radha Govind, Radha Krishan and Radha Madhav. Statements of Sri Radha Krishna Desai (working partner), Pankaj Vora, Sales Manager and others were recorded during the survey action. The basis of the said additional income is the entries in the diary (Annexure A1 to A4) maintained by the assessee. The contents in the said Annexures (A1 to A4) suggest that the assessee had unaccounted receipts worth ₹ 6,65,19,715/- and unaccounted expenditure of ₹ 5,01,65,977/-. These expenditure include illegal payments of ₹ 88,19,000/-. The AY wise break up of receipts. Expenditure - both legal and illegal, building wise breakup are given in the table below: Dairy No. A2 A3 A4 A1 A5 Total Financial year 2005-06 2006-07 2007-08 2008-09 01.04.2009 25.11.2009 Radha Govind 37,77,000 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal payments or the payments exceeding ₹ 20,000/- were disallowed in the assessment. This is the first addition and the contents of the para 4 and its sub-paragraphs are relevant. 4. Further, AO denied the claim of deduction u/s 80IB(10) in respect of the profits of the Radha Govind building of the project. Otherwise, the assessee reported the profits from the said building amounting to ₹ 4,07,41,393/- and claimed deduction of entire profits under section 80IB(10) of the Act. The reasons include that two Flats of the said building namely Flat Nos. 901 and 902 had violated the specified area of 1000 sq ft. AO relied on the DVO‟s report in this regard. Further, these two Flats are owned by one person (para 5.3 are relevant). For the violation, AO denied the claim of deduction in respect of the entire profits of the Radha Govind building. 5. Further also, the AO made another addition of ₹ 29,26,940/- being the unexplained expenditure u/s 69C of the Act by way of bogus purchases‟. Facts include that the assessee recorded the purchases from the suppliers namely Vinayak Trading Co, Chetan Enterprises. Undisputedly, these parties are pronounced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3;s views are required to be upheld. Per contra, Ld AR for the assessee brought our attention to various binding judgments and submitted that the denial of deduction on proportionate basis would meet the requirements of the said judgments and the principles of the natural justice. Some of the said decision relevant for the proposition of proportionate allowance of deduction includes Elegant Estates (383 ITR 49) (Bom); G V Corporation (38 SOT 174) (Mum. Trib); Nagarjun Homes (46 SOT 287) Hyd Trib etc. Further, notwithstanding the said argument, Ld Counsel also submitted that the provisions of clause (f) to section 80IB(10) of the Act are prospective in application and they will not apply to the building of Radha Govind under consideration. For this proposition, Ld Counsel for the assessee relied on the order of the Tribunal in case of Emgreen Holiday P Ltd (47 SOT 98) (Mum Trib) and Apex Court Judgment in the case of Veena Developers (277 ITR 392). At the end of the hearing proceedings, Ld Counsel submitted that there is no area violation and the report of the DVO supports to the assessee. Regarding ownership related violation, there are decisions to support the legal proposition th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selectively use evidence only against the appellant. Once we are accepting the value of the evidences found during the survey to add to the receipts, then in terms of natural justice, the claim of expenses has also to be given. It may also be mentioned that the department has accepted the findings of the Hon‟ble CIT(A) in the year referred to supra and have not filed any further appeal and therefore, to this extent accepting both the principles of following revenue recognitions in the year of completion and also bifurcation the receipt and expenses pertaining to the financial period being 31.3.2009 and financial year ending 31.3.2010. On this issue, the appeal of the appellant is here by allowed. It may be clarified that considering that the order of the predecessor is accepted, the addition for the year would be liable to tax only is AY 2011-12 and the calculation to be adopted would be total receipts upto November, 2009 of ₹ 1,03,25,300/- minus expenses of ₹ 95,76,050-/- being the expenses above ₹ 20,000/- less expenses below ₹ 20,000 of ₹ 2,39,119/- thereby restricting the income for this year to ₹ 5,10,410/-. 10. From the above, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire AY-specific on money of ₹ 1.03 cr has to be considered against the said expenditure of ₹ 95.76 lakhs while determining the net on money of ₹ 5,10,410/- for this year. Further, Ld AR also demonstrated that the said illegal payment of ₹ 22.82 lakhs was not claimed as allowable expenditure in any form. Drawing out attention to the finding of the CIT(A) in restricting the addition to ₹ 5,10,410/-, Ld Counsel explained that the CIT(A) taxed the AY specific gross all on money‟ receipts of all the entire project with three buildings after deducting the all legal expenditure including the expenditure below ₹ 20,000/-. Relying on various decisions of the binding judgments, Ld AR submitted that the AO cannot pick and choose when an assessment is made based on the impounded documents or diaries. Referring to the method of accounting also, Ld AR repeatedly asserted that the assessee follows Project Completion Method and therefore, the housing project since completed in AY 2011-12 only the sum offered during the survey action and discrepancies, if any, need to be taxed in that year only. Ld AR also argued that the AY 2010-11 is year of survey and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding the correctness of the same, we need to examine the method of accounting followed by the assessee for this project and also the finalized decision on the similar addition for the AY 2009-10 etc. A. Method of accounting: It is the declared policy of the assessee to follow the Project Completion method‟. The project consists of completion of all three building. Notwithstanding the said policy, during the survey action, the assessee offered to recognize the income relatable to the Radha Govind‟ which is actually completed by that date. But for certain violation with reference to flat 901 and 902, it is eligible for deduction u/s 80IB(10) of the Act. He accordingly, quantified the related profits and claimed the said deduction. Of course, AO denied the said claim as in AY 2009-10. This issue is also the subject matter of the litigation in this appeal. After considering the facts and the judicial precedents relating the allowing of the proportionate deduction, as discussed above, we ordered the AO to grant the same and implement the said judicial orders. Therefore, in principle, the building Radha Govind is an eligible one for deduction u/s 80IB(10). On the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome, needs to be taxed in the year under consideration. Therefore, in principle, we approve the finding of the CIT(A) in deleting such addition of ₹ 6.65 cr. Therefore, we do not approve the addition of the entire on money receipts of ₹ 6.65 cr made by the AOs repeatedly in AYs 2009-10 and 2010-11. C. Why to tax on money of two other building in this year?: Regarding the confirming of the addition of only ₹ 5,10,410/-, as aggrieved by the revenue in the grounds, we find, the CIT(A) considered the sum of ₹ 1.03 cr (₹ 32,43,750 of Radha Govind plus ₹ 55,94,050/- of Radha Krishna plus ₹ 14,87,500/- of Radha Madhav) ie the on money receipts relevant for all three buildings of this AY and reduced all the legal expenditure of ₹ 95.76 lakhs plus other sum of ₹ 2,39,110/- of this AY for arriving at the said net on money earned from 1.4.09 to date of survey of ₹ 5,10,410/-. Why must the CIT(A) consider the on money receipts of the other two buildings in this year when their related accounted profits is offered to tax in the next AY , the year of completion of the project? In our view, such calculation is not proper for the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific to Radha Govind, we find there are binding judgments in favour of the assessee (Sheth Developers. 254 CTR 127 (Bom)). However, there is procedural issues relating to Audit Report. As argued by the Ld DR, the said net on money if any of the building Radha Govind is outside the Audit Report in Form 10CCB and thereby such on money income becomes ineligible for deduction u/s 80IB(10) of the Act for want of Audit Report. To the extent of such on money, there is no Audit Report. Assessee has not filed the revised Audit Report if any even before the appellate authorities. Therefore, relevant arguments of Ld AR are not approved fully. Further, we are aware about the existence of many helpful decisions on this issue in favour of the assessee and against the revenue. In principle, the deduction is allowable on such income. But the issue is existence of the Mandatory Audit Report covering the said on money receipts of this building. As such, CIT(A) has not given any categorical finding on this issue. Further, none of the decisions cited by the Ld AR has dealt with this issue of Audit Report. CIT (A) needs to adjudicate this part of the issue afresh after granting a reasonable opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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