TMI Blog2022 (5) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... to estimate the profit element embedded in the on-money, it is observed that the same was arrived at by the learned CIT(A) by relying on the decision of Hon ble Gujarat High Court in the case of Jay Builder[ 2012 (12) TMI 1194 - GUJARAT HIGH COURT] wherein the decision of ITAT adopting the net profit rate of 15% to estimate the income embedded in on-money was upheld by their Lordships. Keeping in view the said decision of the Hon ble jurisdictional High Court and having regard to all the facts of the case, we are of the view that the net profit rate of 20% adopted by the learned CIT(A) to estimate the income of the assessee embedded in on-money of Rs.3,03,50,000/- is fair reasonable and there is noting brought on record by the learned DR to dispute the same. We, therefore, find no infirmity in the order of the learned CIT(A) restricting the addition of Rs.3,03,50,000/- made by the Assessing Officer on account of on-money to Rs.60,70,000/- and upholding the same, we dismiss Ground No.1 of the Revenue s appeal. Addition made on account of deemed rent - unsold units (Flats) in the hands of builder at the year end - property is used as stock-in-trade - Income from house propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hmedabad, certain documents were seized and identified as Annexure A-4 (Page No.74 to 82). The said documents contained the entries regarding the on-money received by the assessee on sale of flats from a project named Krishna Venue . After considering the explanation offered by the assessee in respect of relevant entries found reflected in the relevant seized documents and taking into consideration the details and documents available on record, the Assessing Officer arrived at a conclusion that the on-money of Rs.3,03,50,000/- received by the assessee in cash pertaining to the sale of flats recognized in the year under consideration as well as the on-money of Rs.6,70,51,310/- received by the assessee as reflected in the relevant seized material pertaining to sale of flats made in other years represented the undisclosed income of the assessee. He accordingly made a total addition of Rs.9,74,01,310/- on account of on money received by the assessee on sale of flats. 4. The addition of Rs.9,74,01,310/- made by the Assessing Officer on account of on-money was challenged by the assessee in appeal before the learned CIT(A). The first contention raised on behalf of the assessee before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money receipt for the unsold units is contradictory of the AO's decision for A.Y. 2014-15 2015-16. Reliance is placed on decision of Hon'ble Ahmedabad ITAT in the case of Ms D.R. Construction V/s ITO (ITA No 2735/Ahd/2010) dated 08/04/2011 wherein it is held as under: ..15. The next issue comes as to when the income out of such receipt would accrue to the assessee. In our considered view receipt of on money is part and parcel of money received on sale of flats by cheque. The amount received by cheque before actually transferring the flats to the purchasers will be in the nature of advance and cannot be said to have accrued to the assessee. Assessee has incurred expenditure/investment in the project in various years but income to it will accrue only when flats are sold to the buyers. Advance money received by the assessee can never be his income. It would only be a in the balance sheet as advances from the customers and will be adjusted proceeds of the flats when flats are transferred to the purchasers. Therefore, accrual of income to the assessee will not arise on the date when it receives cheque or cash sale on flats but will arise when flats are transferred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the third contention raised on behalf of the assessee before the learned CIT(A) that the on-money to the extent of Rs.3,03,50,000/- received on sale of flats during the year under consideration cannot be entirely treated as income and the same should be restricted to the net profit of such on-money representing sale value of the flats, the same was also accepted by the learned CIT(A) and the addition of Rs.3,03,50,000/- was restricted by him to Rs.60,70,000/- being 20% net profit embedded in the on money for the following reasons given in paragraph Nos. 5.12 and 5.13 of his impugned order:- 5.12 So far as alternate ground of appeal regarding taxing not entire on money but only profit embedded on such on money, it is observed that AO himself at page no 27 of the order at para (j) contended that documented sale price is hugely suppressed and how can the Assessee meet the cost of construction when he is selling flats at such huge discount and obviously cost is met from unaccounted money which itself suggest that there is also unexplained expenditure pertaining to such on money receipts. It is settled legal law that entire receipts or on-money cannot be income of Appellant as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NT. (iv) CIT versus Abhishek Corporation ITR No. 15 of 2003 where it is held that- It can thus be seen that consistently, this court and some other courts have been following the principle that even upon detection of on-money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipt and not the entire receipts themselves. If that be the legal position what should be estimated as a reasonable profit out of such receipt, must be an element of estimation. 16. In view of the legal position that not the entire receipts but the profit element embedded in such receipt can be brought to tax, in our view no inferences called for in the decision of the tribunal accepting such element of profit at Rs. 26 lakhs out of total undisclosed receipt of Rs. 62 lakhs. In other words, we accept the proposition, the tribunal accepting Rs. 26 lakhs, would not give rise to any question of law. (v) Decision of Hon'ble Gujarat High Court in case of Jay Builder vs. ACIT [2013] 33 taxmann.com 62 (Gujarat) Section 253, read with section 69A, of the Income-tax Act, 1961 - Appellate Tribunal-Appealable orders (Aggrieved Party) - Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verse consequences. The only question is whether the addition made by the appellate authorities is adequate or a higher addition would be justified. As far as total turnover is concerned, same cannot be disputed as the assessee was only doing development work for the Greater Noida Authority. The total turnover is also supported by the tax at source certificate. The quantum of turnover was not adversely commented upon by the Assessing Officer. In view of the aforesaid position, revenue was directed to ascertain the gross profit or net profit rates declared and accepted by the Assessing Officer in case of other contractors engaged in similar work. The Assessing Officer has not given any comments in this regard. In these circumstances, prayer of the revenue that an order of remand may be passed cannot be accepted. The Assessing Officer in the subsequent years has accepted 8 per cent net profit, which is the figure which has been adopted by the appellate authorities in the instant case. The revenue has not been able to point out or state that the other similar contractors have a higher profit rate, than the net profit rate of S percent as held by the appellate authorities. The said rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh it was case of the assessment year 1992-93, and the provisions of section 44AD were strictly inserted in the Act with effect from 1-4-1994, yet the same could be a guideline for the purpose of applying a particular net profit rate in the case of civil contractor even in earlier years. The assessee was also civil contractor engaged in construction work taken on contract and the gross receipts of the assessee were below Rs. 40 lakhs. Therefore, the net profit rate of 12.5 per cent applied by the authorities below in the case of the assessee was excessive and exorbitant. Accordingly, the application of net profit rate was to be modified from 12.5 per cent to 8 per cent on the gross receipt shown by the assessee. The Assessing Officer should work out the profit accordingly. [Para 30] (iii) Decision of ITAT, Indore Bench in case of Badshah Construction Co. vs. DCIT (2003) 127 Taxman 153 (Indore) (Mag) It is also observed that Hon'ble Gujarat High Court in case of Jay Builder vs. ACIT (2013) 33 taxmann.com 62 has upheld decision of Hon'ble Ahmedabad ITAT for taxing 15% net profit on on-money receipts. It is also observed that Appellant itself has been showing net pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration, it is observed that this amount representing undisclosed sale proceeds of the flats sold in the year under consideration was entirely treated by the Assessing Officer as the income of the assessee without giving any deduction on account of corresponding expenditure incurred by the assessee. As rightly held by the learned CIT(A) by relying upon the various judicial pronouncements including the judgments of Hon ble Gujarat High Court, the entire receipts or on-money representing undisclosed sales proceeds of the flats cannot be the income of the assessee and only the income embedded in such on-money can be taxed as the undisclosed income of the assessee. He also relied on the observations made by the Assessing Officer himself that it was difficult to comprehend how the assessee could meet the cost of construction when he was selling flats on huge discounts, meaning thereby that the construction cost was met by the assessee even from the on-money representing unaccounted sales proceeds of the flats. As regards the net profit rate of 20% adopted by the learned CIT(A) to estimate the profit element embedded in the on-money, it is observed that the same was arrived at by the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as long as the assessee continued to be owner of the vacant flats, it had to be assessed under the head of income from house property; since there was no letting out, the basis of assessment had to be ALV, which was rational and scientific. In the present case, the assessee is engaged in building activities. The levy of income tax in the case of one holding house property is premised not on whether the assessee carries on business, as landlord, but on the ownership. The incidence of charge is because of the fact of ownership. In this case the intention of the assesse was to hold the properties till they were sold. The capacity of being an owner was not diminished one with, because the assessee carried on business of developing, building and selling flats in housing estates. ALV is a method to arrive at a figure on the basis of which the impost is to be effectuated. The existence of an artificial method itself would not mean that levy is impermissible. Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. This i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined in case of builder when he has unsold units at the year end. The contention of the appellant regarding amendment in provisions of section 23(5) of the Act with effect from 1 st April 2018 in support of its claim is not found acceptable, as this provision is effective with effect from 1st April 2018 and the appellants case belongs to period prior to this date. Hence this contention is rejected. This issue has been decided in the following cases in details: It is observed that Hon'ble Mumbai ITAT in the case of ITO vs Arihant Estate Pvt Limited (ITA No 6037/Mum/2016) dated 27/06/2018 has held as under: We have heard the rival submissions and perused the orders of the authorities below and the decisions relied upon. It is an undisputed fact that the assessees are in the business of builders, developers and construction. Both the assessees have constructed various projects and the projects were treated as stock in trade in the books of account. Flats sold by the assessees were assessed under the head 'income from business'. There were certain unsold flats in stock in trade which the AO treated as property assessable under the head 'income from house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear from the records that, except for the ground floor, which has been let out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a 'stock-in-trade', 9. Similarly the Coordinate Bench has considered similar issue as to whether the unsold property which is held as stock in trade by the assessee can be assessed under the head 'income from house property' by notionally computing the annual letting value from such property and the Coordinate Bench considering the decision of the Hon'ble Delhi High Court in the case of Ansal Housing Finance Leasing Co. Ltd. (supra) which the AO relied upon and the decision of the Hon'ble Supreme Court in the case of Chennai Properties Investments Ltd. vs. CIT reported in 373 ITR 673, held that unsold flats which are in stock in trade should be assessed under the head 'business income' and there is no justification in estimating rental income from those flats and notionally computing annual letting value under Section 23 of the Act. While holding so the Coordinate Bench observed as under: - 3. The Id. AR placed the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letting value of the flats u/s.23 of the I.T. Act. 10. In the case on hand before us it is an undisputed fact that both assessees have treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head 'income from business'. Thus, respectfully following the above said decisions we hold that the unsold flats which are stock in trade when they were sold they are assessable under the head 'income from business' when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect of those unsold fiats under the head 'income from house property'. Thus, we direct the AO to delete the addition made under Section 23 of the Act as income from house property. 6. Admittedly in this case on hand the unsold property being shops were held as stock in trade. In the circumstances, respectfully following the above decision we uphold the order of the Ld. CIT(A) and reject the ground raised by the Revenue. 7. In the result, appeal of the Revenue is dismissed. Similar observation has been given by Hon'ble Mumbai ITAT in the case of Runwal Construct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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