2011 (11) TMI 35 - HC - Income Tax

Block assessment - Nature of cancellation charges - the addition was made by the assessing officer on the ground that the assessee ought to have charged cancellation charges from customers who cancelled their bookings and not on the basis of any material found during search. - CIT(A) and ITAT held that the addition for cancellation charges was not justified. - No substantial question of law arises - decided in favor of assessee. Project completion method or the completed contract method - Accounting Standards 7 (AS7) - The finding of the CIT (A) was approved by the Tribunal with the observation that the department has accepted the assessee s method of accounting namely, the project completion method and therefore there was no justification for adopting the percentage completion method for one year on selective basis. - In view of decision of Supreme Court in Commissioner of Income-Tax v. Bilahari Investment P. Ltd. (2008 -TMI - 3361 - SUPREME COURT) held that - No substantial question of law arises - decided in favor of assessee. Addition of ₹ 3,82,94,536/- being stamp duty and electrification charges recoverable by the assessee. - . It was explained that in case there is any surplus of the registration and electrification charges collected from the customers over the amounts paid to the State Government, the surplus would be shown as income in the year of receipt. The assessing officer rejected the explanation on the ground that revenue receipts and capital expenditure cannot be adjusted against each other. He, therefore, added the amount of ₹ 3,82,94,536/- as the assessee s income. - when the assessee paid the registration and electrification charges they were not claimed as deduction in the profit and loss account. On these findings of fact the Tribunal agreed with the CIT(A) that the amount cannot be added. - Held that - No substantial question of law arises - decided in favor of assessee. Acceptance of additional evidence - Held that - The Tribunal erred in its interpretation of the provisions of Rule 46A vis- -vis Section 250(4). Its view that since in any case the CIT (A), by virtue of his conterminous powers over the assessment order, was empowered to call for any document or make any further enquiry as he thinks fit, there was no violation of Rule 46A is erroneous. The Tribunal appears to have not appreciated the distinction between the two provisions. If the view of the Tribunal is accepted, it would make Rule 46A otiose and it would open up the possibility of the assessees contending that any additional evidence sought to be introduced by them before the CIT (A) cannot be subjected to the conditions prescribed in Rule 46A because in any case the CIT (A) is vested with conterminous powers over the assessment orders or powers of independent enquiry under sub-section (4) of Section 250. That is a consequence which cannot at all be countenanced. - Decided in favor revenue. Receipt of advances from customers - genuineness of the advances - Held that - The issue relating to the addition of ₹ 1,61,67,600/- made under Section 68 of the Act is restored to the CIT (A) who shall comply with the requirements of Rule 46A and take a fresh decision on the merits of the addition in accordance with law.

Issues Involved:
1. Addition of cancellation charges amounting to Rs.10,97,850/-.
2. Determination of income based on project completion method versus percentage completion method.
3. Addition of Rs.28,21,000/- based on percentage completion method.
4. Addition of undisclosed transfer charges at 3.6%.
5. Addition of Rs.3,82,94,536/- for stamp duty and electrification charges.
6. Addition of Rs.1,61,67,000/- as unexplained cash credits under Section 68.
7. Admission of additional evidence by CIT (A) without opportunity for the Assessing Officer to rebut.

Detailed Analysis:

1. Addition of Cancellation Charges:
The Assessing Officer added Rs.10,97,850/- as cancellation charges based on a single instance found in seized documents, assuming this applied to all cancellations. The CIT (A) found no evidence of such charges being received outside the books and noted that the specific case related to a different entity. The Tribunal upheld the CIT (A)'s decision, stating the addition was based on assumptions rather than evidence. The High Court concluded that this was a factual matter with no substantial question of law arising, thus declining to admit this issue.

2. & 3. Determination of Income:
The Assessing Officer added Rs.28,21,000/- arguing the assessee should use the percentage completion method rather than the project completion method. The CIT (A) found the project completion method appropriate, noting that the project was completed in the relevant year and possession was handed over accordingly. The Tribunal upheld this, noting the department had accepted this method in other cases. The High Court referenced Supreme Court judgments affirming the validity of both methods and concluded no substantial question of law arose, declining to admit these issues.

4. Undisclosed Transfer Charges:
The Assessing Officer added Rs.2,19,701/- assuming similar transfer charges were received in all cases based on one instance. The CIT (A) found no evidence supporting this assumption and deleted the addition. The Tribunal found no grounds in the Revenue's appeal to challenge this decision. The High Court concluded that this issue did not arise from the Tribunal's order and declined to admit it.

5. Stamp Duty and Electrification Charges:
The Assessing Officer added Rs.3,82,94,536/- arguing these charges were revenue receipts. The CIT (A) found these charges were correctly shown as recoverable advances and not claimed as expenses. The Tribunal agreed, noting the method adopted by the assessee was acceptable and did not impact revenue. The High Court found no material to disturb these factual findings and concluded no substantial question of law arose, declining to admit this issue.

6. & 7. Unexplained Cash Credits and Admission of Additional Evidence:
The Assessing Officer added Rs.1,61,67,600/- as unexplained cash credits under Section 68 due to lack of confirmation letters. The CIT (A) admitted additional evidence (confirmation letters) during appeal, which the Assessing Officer had not required initially. The Tribunal upheld the CIT (A)'s decision, stating there was no violation of Rule 46A. The High Court disagreed, stating Rule 46A's procedural requirements were not followed, and the Assessing Officer was not given an opportunity to examine the additional evidence. The High Court reframed substantial questions of law regarding Rule 46A's application and remanded the issue to the CIT (A) for compliance with Rule 46A.

Conclusion:
The High Court admitted substantial questions of law regarding the addition under Section 68 and Rule 46A's application, remanding the issue to the CIT (A) for further consideration. Other issues were dismissed as they did not raise substantial questions of law.

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