2014 (6) TMI 807 - AT - Income Tax

Estimation of profit in real estate business proceedings u/s 153BC - search and seizure operations - Held that - the satisfaction of the assessing officer has to emerge from the material found during the course of search operation. - During the course of search in the premises of Jain Housing Constructions Pvt Ltd, documents disclosing the receipt of 6.5 crores by assessee was found and seized. On the basis of this information, the assessing officer issued notice u/s 153C of the Act since the assessee is not the searched person. Therefore, the contention of the assessee that no material was found during the course of search operation is not correct. - Decided against the assessee. Filing of belated return in response to notice us/ 153C - Held that - the belated return filed by the assessee after the expiry of the time limit for filing return of income given is also an information came to the knowledge of the assessing officer in the course of the assessment proceedings. Therefore, the information contained in such belated return can also be considered for completing the assessment. - the contention of the assessing that the assessing officer cannot act upon the belated return filed by the assessee on 19-08- 2009 has no merit at all. - Decided against the assessee. Estimation of profit - real estate business - assessee acted as aggregator of land for ETL Infrastructure Services Ltd and Jain Housing Construction Co Pvt Ltd. - Held that - Taking into consideration the total volume of transactions and the expenditure incurred by the assessee for development of land,etc. this Tribunal is of the considered opinion that estimating the net profit at 1.25% on the receipts from ETL Infrastructure Ltd would meet the ends of justice. - Decided partly in favor of assessee. Estimation of profit - in addition to acting as an agent / facilitator in purchasing the land has to fill up the land, construct compound wall, road, bridge, etc. - Held that - Since the assessee has to carry out some developmental work on the land like construction of compound wall, bridge, etc. in addition to facilitating the purchase of land the profit ratio would be little more than that of acting a mere broker. The assessee is not a civil contractor. - CIT(A) has rightly taken into consideration all the material facts with regard to the nature of transaction and work undertaken by the assessee and righty restricted the profit at 5%. Decided against the assessee.

Summary

Issues Involved:
1. Legality of proceedings initiated under Section 153C of the Income Tax Act.
2. Estimation of profit in real estate transactions with ETL Infrastructure Services Ltd.
3. Estimation of profit in real estate transactions with Jain Housing & Construction Pvt Ltd.

Detailed Analysis:

1. Legality of proceedings initiated under Section 153C:

The assessee contended that no material was found during the search operation, rendering the proceedings under Section 153C illegal and void. The Tribunal noted that Section 153C requires the assessing officer to be satisfied that seized documents belong to a person other than the one searched. In this case, searches at the premises of partners of NL Properties & Developers and Jain Housing & Constructions Pvt Ltd revealed transactions involving the assessee. Consequently, the assessing officer issued a notice under Section 153C. The Tribunal found that the search did yield relevant material, thus justifying the proceedings under Section 153C.

The assessee also argued that the assessing officer did not record satisfaction before initiating proceedings. The Tribunal referred to the Kerala High Court's interpretation that if the same officer handles both the searched person and the other person, the non-recording of satisfaction does not invalidate the proceedings. Hence, this argument was dismissed.

Regarding the notice issued under Section 153C, the Tribunal held that the assessing officer has the authority to extend the time for filing returns, and the belated return filed by the assessee could be considered in the assessment.

2. Estimation of profit in real estate transactions with ETL Infrastructure Services Ltd:

The assessing officer estimated the profit at 5% of the total receipts from ETL Infrastructure Services Ltd, while the CIT(A) reduced it to 2.5%. The Tribunal noted that the assessee acted as an aggregator of land and incurred expenses for development, salaries, and office maintenance. Given the high volume of transactions and associated expenses, the Tribunal found the CIT(A)'s estimation of 2.5% excessive and revised it to 1.25% of the total receipts, considering it a fair estimation of net profit.

3. Estimation of profit in real estate transactions with Jain Housing & Construction Pvt Ltd:

The assessing officer estimated the profit at 10% of the total receipts, which the CIT(A) reduced to 5%. The Tribunal observed that the assessee, besides facilitating land purchases, undertook developmental activities like filling land, constructing compound walls, roads, and bridges. Although not a regular civil contractor, the nature of the work justified a higher profit margin than mere brokerage. The Tribunal agreed with the CIT(A)'s estimation of a 5% profit margin, considering it reasonable given the nature of the developmental work and volume of transactions.

Conclusion:

The Tribunal partly allowed the assessee's appeal by modifying the profit estimation for transactions with ETL Infrastructure Services Ltd to 1.25% and dismissed the revenue's appeal, confirming the CIT(A)'s estimation of a 5% profit margin for transactions with Jain Housing & Construction Pvt Ltd. The order was pronounced on June 6, 2014.